Option ARM Resets, Opportunity or Danger
Posted by Ray on January 13, 2010 under Markets | 
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Clearly there have been many issues with options ARM’s over the past 2 years as defaults are rising to rival sub-prime loans. Based on estimates from various sources, such as Moody’s and Bank Rate, there will be an increase in option ARM resets between 2010 and 2011. Obviously if things continue along the current trend we will see an uptrend in problems with these mortgages, but I do see some good news about this, for now at least.
With the extension of the homeowner tax credit to buy a home, regardless of how we feel about the newer government programs, has helped to stabilize home prices for now. In some areas we see prices on homes starting to rise, albeit at a modest rate, but this might open the door for these homeowners to refinance their mortgages. With mortgage rates still at very low rates it may be possible for the homeowner to refinance their current mortgage to a fixed rate product and avoid the pain of the ARM reset before it happens.
I realize that home loans are not exactly in the highest demand right now and credit from banks may be tougher to get than a few years ago, but, from my point of view, it would be better to attempt to refinance now than wait. With the Fed, supposedly, about to end its QE programs it is possible for rates to increase this will be less attractive and more difficult for homeowners to refinance in the future. Whether or not the uptick in home prices continues is another story and the point is now may be the best time to at least attempt to get out of these option ARM’s rather than waiting for them to reset. Clearly letting these loans reset has not worked so far.
There are always going to be set backs with trying to refinance and there is no guarantee that the homeowner can even get the credit they want. However, doing something is better than nothing and if we can get people out of these loans we could, possible, stop some of the foreclosure problem and default problems which is currently plaguing banks.
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DW said,
I think that you raised some good points in this article–mainly those pertaining to refinancing and offering other options during this particular period of time. The problem is that a lot of homeowners generally get in over their heads and do not make the best decision for their particular situations. I think that it is important that one actually does the research, rather than just taking a lender or broker’s word for it.
I’ve seen way too many people make poor, hasty decisions like these in the past, and I’m actually looking at my options at the moment. I do think that this article was quite helpful, and I will most likely end up refinancing.
This article has actually been informative and quite helpful in my decision-making process:
http://www.bankapedia.com/mortgage-encyclopedia/faqs/661-when-are-the-drawbacks-to-refinancing
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