ANYONE who believes that the worst is over in the subprime mortgage fiasco need merely wait awhile. A tsunami of interest rate increases on these loans is headed your way....
During the next five years, some $1 trillion in adjustable-rate mortgages will reset. But in the here and now — from just June to October this year — more than $100 billion of that amount is scheduled to reset, and all of it is in loans that are in the riskier subprime category. Given the recent interest rate spike, many of those loans that once carried low teaser rates are on track to reset to at least 11 percent — or more than four percentage points higher than the current rate on a conventional, 30-year home loan.
Chances are slim that even the most creditworthy borrowers can survive payment shocks like these. And so, as the reset storm hits, delinquencies will rise and foreclosures will follow. It is too early to estimate how many foreclosures will take place as a result, but last year there were 1.2 million, according to RealtyTrac, an online real estate database.
By GRETCHEN MORGENSON
Published: June 10, 2007
This will have repercussions from top to bottom of the real estate market.
There are significant numbers--though smaller than the percentage of subprimes about to reset--of adjustable rate mortgages in all segments of the housing market. The chaos that is coming in the low end will send shockwaves to every corner, every block, every subdivision, every condo development, every golf course dotted with tract mansions in Waukesha County.