October Heavy With ARM Resets
Starting this month, October, a heavy schedule of ARM ( adjustable rate mortgage ) resets start that will continue until at least mid 2008. Between now and next July the estimated number of ARM resets will be about 2,500,000.
That means that an additional 2,500,000 mortgage holders will face the pain of sharply higher monthly payments on their housing mortgages. What many ARM mortgage borrowers did not understand at the time they closed on their loans is that many reset rates are tied to LIBOR rates rather than to the US fed funds, discount, or prime rate.
This is bad news for those who took out ARM mortgages that are tied to the LIBOR rate. LIBOR is a much more volatile rate and recently has had a strong upward bias. Some housing market analysis believe that the average rate of the next round of resets could be as high as 10%. That would mean drastic increases in monthly payments, almost a doubling in many cases, for those home owners who are hit with such resets.
Do not be fooled into thinking that the housing crisis is about over. Rather the cruel heart of the crisis is just about to get underway. If you have cash available for investment in the housing market it is probably wiser to hold onto your cash for at least another year. The time will come when those who have cash will be able to make some amazing deals in buying housing units but in my opinion , not now.
Before the housing crisis is over we will probably witness a true panic. We are not at that stage yet. When the media and almost everyone else has completely given up on housing as an investment the bottom will likely be near.
Be wise and be patient. What is one man’s disaster will be another man’s opportunity. Just make sure that you are on the right side of the trade.
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