Adjustable Rate Mortgages Are Back….. God Help us all.

I was surfing the internet trying to catch up on some news when I came across an article from CNN online. The title of the article was, “Adjustable Rate Mortgages Are Back!” A shiver went down my spine as I nearly began to hurl before I finally was able to contain myself. The jist of the article is that ARMS are great if you plan on living in the home for a few years since the teaser rate on an ARM is less than that of a fixed rate mortgage. I’m sure that was never thought of a few years ago when ARMS made up over 70% of the mortgage market as the real estate market collapsed. It’s amazing to me how we just don’t seem to learn from our mistakes. Lets say a buyer uses an arm to purchase a home they only plan on living in for say 5 years.The initial rate is lower then a current fixed rate mortgage. Great! Here is the problem. The real estate crash occurred because buyers were issued ARMS on homes they could not afford. The case for ARMs today is that lenders are demanding higher credit scores in order to qualify for an adjustable rate. Just because they are looking at higher credit scores doesn’t mean its high enough to determine if the borrower can afford the loan. Also, even if the owners plan on staying in the home for say a few years. How do they plan on selling it? In Florida alone 1 out of 6 homes are vacant. This means that homes values will decline or stay stagnant for the next few years. At least in the state of Florida. Do you think the owners are going to be able to sell the home at or above what they initially purchased after 5 years? Chances are they won’t. That means the owners may have to stay in the home past the expiration of the teaser rate. Then they’ll be stuck with an interest rate that could be astronomical. As for the rest of the country, it will take some time before home values begin to creep back up again. There could be some short term spikes. But those jumps in price will be short lived. Fannie and Freddie estimate that ARMs will make up 10% of the mortgage market by years end. I predict it will be higher then. I would hope people learned something from the market meltdown. But hope seems to be an empty word now a days.


~ by fnunez on March 23, 2011.

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