American Banker (02/22/08) P. 17; Terris, Harry
While aggressive action on the part of the central bank to lower interest rates mitigates the issue of resets on subprime adjustable-rate mortgages in the coming months, Barclays PLC warns in a new report that "the real reset risk" is yet to come. It is referring specifically to option ARMs, which allow borrowers to assume additional debt; Barclays' projects that $312 billion worth of these products will become fully amortizing over the next several years. Payments on the loans are expected to surge a staggering 60 percent to 80 percent per month, compared to a range of 8 percent to 10 percent for regular subprime resets. Combined with a drop in residential prices that will leave most borrowers owing more on their properties than they are worth, Barclays says the rate adjustments on option ARMs will "be significant catalysts in increasing foreclosures and further driving down home prices in the near future."
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