Many are expecting interest rates to rise quickly very soon by at least a point. This will cause many Homeowners already distressed by job loss or under water mortgage payments to have to pay even more every month. It is expected that the next adjustable rate mortgage reset will lead to another jump in residential defaults.
Specifically, here is what is in the works: Rates are resetting. Currently, interest rates are at historic lows with 30 year fixed mortgages below 5%. As interest rates increase ARMs are likely to readjust by as much as double where they are now. Just like many commercial owners, Homeowners with ARMs are often not qualified to refinance because the mortgages are under water. Hence, many will become distressed and will either need a Short Sale or face foreclosure.
Homeowners' equity is gone. Many over-improved property over the boom years, or took on second or third mortgages to use for other purposes. Homeowners took on too much debt and now cannot qualify for additional financing because of inadequate income compared to debt.
Homeowners are making the decision to abandon homes even when they have the income to continue paying. In many cases it is cheaper to rent than to continue paying mortgages-or at least that will be the case as ARMs reset. Homeowners who can qualify for an FHA loan inside of three or four years despite a foreclosure on the books are making the "business" decision to walk. It is estimated that approximately 25% of all foreclosures are for Homeowners who simply gave up despite the ability to pay.
Investors should get prepared for this new wave of Short Sale business.
Dave Rosenmarkle
Broker/Owner
Highland Realty
Arlington, VA 22207
703-538-2566
davidrose@mris.com
www.HighlandAgent.com
Comments(1)