Today’s front page of the WSJ has an article titled, “Mortgage Increases Blunted.” As you know, another oncoming wave of resets on adjustable rate mortgages (ARMs) has been a concern of ours. This article did bring up a good point, though:
“Lower-than-expected interest rates, coupled with efforts to aggressively modify loans, are likely to mute payment shocks for some borrowers.”
While this is very true, we’d also like to point out that mortgage resets will continue into the future, and there is long-term inflationary pressure building. Of course, borrowers could refinance to fixed rate loans, but many are finding it difficult to refinance because their home is under water. Overall, 1 in 4 homes are under water, and even more frightening, more than 3 of 4 option ARMs are under water! Others can’t refinance because their incomes have either declined or they’ve lost their job altogether. So, for the time being, the mortgage reset concern may be dampened, but it won’t disappear forever. And until the housing market truly stabilizes, it will be difficult for our economy to be on firm ground.
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