Mortgage Default Crisis Just Starting
The number of homeowners who are defaulting on their mortgages is just starting to show its true size. While many may believe that the crisis is in full swing, it actually is just beginning. Tip of the hat to New York City Housing Bubble which pointed me to this post by the Market Oracle.
The image below shows an annual breakdown of the number of ARM mortgages that have been written since 1990.
ARMs gained popularity in 2003 and remained in high demand during the boom years when residential real estate market experienced unparalleled appreciation.
Now however we are just beginning to see the ARMs issued in 2003 begin to reset. The resetting has caused homeowner's monthly payments to rise to a point that their income cannot support paying, thus the high rate of default. But as you can see by the chart below, this is just the tip of the default iceberg. Over a trillion dollars in ARMS will adjust in rates over the next 5 years.
Homeowners with ARMs that have not adjusted yet need to start to think about what they can do to improve their chances of not defaulting on their mortgage when that reset date comes. For many that will mean refinancing and paying the penalty that ARMs typically charge or finding additional income sources to support the increased monthly expense. However, many homeowners may find that their best solution will be to sell. Whether a homeowner stays or sells, the one thing that they must do is pay attention to their finances and the overall market conditions.
