Adjustable mortgages aren’t exploding
TEXT OF STORY
Bob Moon: Remember all those adjustable mortgages we were hearing so much about a year ago, because they threatened to explode this year? Well, they’re turning out to be considerably less problematic than feared. Marketplace’s Mitchell Hartman explains.
Mitchell Hartman: The housing market peaked back in 2005. That’s when many unqualified borrowers were getting so-called option-arm subprime mortgages with low initial interest rates, and no principal due for the first five years. Do the math, it’s now 2010, and many of those mortgage bills are adjusting up.
But according to new data from First American CoreLogic, fewer of these troubled loans are still outstanding than was initially predicted. And default rates have leveled off. It turns out many borrowers have already defaulted. Or they’ve refinanced at today’s low interest rates.
The government’s mortgage modification program has also helped, says Harvard University’s Nicolas Retsinas:
Nicolas Retsinas: The notion was if we could change those terms, make those mortgages more affordable, then people would make those payments and stay in those homes.
An expansion of the program, announced Friday, would lower the principal owed on homes that are underwater. That’s the case for three-quarters of option-arm mortgages out there.
I’m Mitchell Hartman for Marketplace.
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