BOSTON – Fears that a new wave of adjustable-rate mortgage rates resetting will set off another wave of home foreclosures likely will not be as severe as expected, according to new analysis by Aite Group.
Senior Analyst John Jay said that low interest rates, loan modification efforts and the fact many homeowners have already defaulted will combine to mean fewer rate hikes and fewer additional defaults.
But Jay told National Mortgage News, an affiliate of Credit Union Journal, "The fact that the number of exotic, adjustable-rate mortgages scheduled to reset to higher rates is shrinking should not be taken as a sign that this sector is 'OK.' It is only manageable from here because so much of the sector already fell into default and required loan modifications or some other type of lender remediation. If such products are to be offered ever again in the future, lenders are advised to underwrite the loans to the fully-indexed and maximum loan sizes. In addition, the creditworthiness of the borrower must be able to withstand economic scenarios. After all, the current remaining nontraditional ARMs were underwritten to what was assumed to be a real estate market that would never decline."
