How Many ARM's Set To Reset in 2008...?

Posted by urbandigs

Sat Aug 18th, 2007 10:04 AM

A: You wonder quietly to yourself? Thanks to the RealEstateJournal.com we have an idea of what's to come in the ARM reset category of the housing equation for the next 3 years.

arm-reset-subprime-loans.jpg

In 2007 (from July 1 - December), there are just over $200B worth of home mortgages that are expected to reset into higher interest rates; that is, adjustable rate mortgages or ARM's. Of that $200B, abut $150B was subprime loans, $30B or so of Alt-A (in between subprime and prime, or near prime loans) loans, and about $30B of loans backed by Fannie Mae or Freddie Mac.

So, whats expected for the next year? Let me break it down for you in comparative purposes to 2007; or just look at the chart.

EXPECTED VALUE OF ARM's RESETTING IN 2008

Subprime - Aprox. $260B of loans set to reset into higher rates

Alt-A - Apox. $30B of loans set to reset into higher rates

Prime - Aprox $15B of loans set to reset into higher rates

Fannie/Freddie Backed - Aprox $50B of loans set to reset into higher rates

TOTAL VALUE OF HOME LOANS SET TO RESET TO HIGHER RATES ---> Aprox $355B

Luckily, according to this study by Deutsch Bank Securities, the dollar amount of home loans expected to reset into higher interest rates for 2009 & 2010 drop significantly. It's 2008 that we have to worry about and how that may or may not further change the lending environment and ultimately housing.

Since banks and lenders have smartened up in the past 6-10 months or so with tighter lending and underwriting standards, less of these adjustable rate loan products were being committed to which explains the drop off expected in 2009 and 2010. Most adjustable rate mortgages are for three or five years; so we are really talking about those who purchase homes between 2004-2006 that we still have to worry about.

There should be some great buying opportunities in the coming year or two as the smoke clears from the mistakes made that led us into this credit/liquidity squeeze. Contrarian investors unite, especially outside Manhattan. As with every recovery, you won't know we are in one until it already happened!


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