ARM resets cause short-term pain but little long-term harm.Although the impending im·pend intr.v. im·pend·ed, im·pend·ing, im·pends 1. To be about to occur: Her retirement is impending. 2. reset of existing ARM loans to higher interest rates will hurt borrowers in the subprime mortgage sector in the short run, it won't have significant impact on the overall mortgage market or the economy at large, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. a study released by First American First American may refer to:
In the study, Mortgage Payment Reset: The Issue and the Impact, First American's director of research and analytics, Christopher Cagan, examined 26 million mortgages and focused on 8.37 million ARMs originated between 2004 and 2006 with outstanding loan balances of $2.2 trillion. "The subprime mortgage market is correcting. It's tightening up and we're moving toward a normal market," said Cagan. "I think the lending industry is going through a classic time of market tightening. This is the kind of market cycle that happens every 10 or 12 years or so." A key finding of the study is that the impact of reset-based foreclosure foreclosure Legal proceeding by which a borrower's rights to a mortgaged property may be extinguished if the borrower fails to live up to the obligations agreed to in the loan contract. will focus on subprime mortgages and teaser-rate loans with low initial interest rates, interest-only or negative-amortization features originated within the past three years, explained Cagan. The total debt outstanding from these mortgages is $326 billion, said Cagan. After foreclosure and resale, it is projected that approximately $112 billion will be lost to remaining equity, lenders and investors over several years. The study predicts that, due to payment reset in the absence of equity, 32 percent of loans with a teaser-rate feature will default, 7 percent of market-rate adjustable loans will default and 12 percent of subprime loans Subprime Loan A loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Notes: Subprime loans tend to have a rate that is 0.1% to 0.6% higher than the prime rate. will default over the next six to seven years. Cagan concluded, however, that while those involved with the riskiest loans may suffer, on a national basis the losses will translate to less than 1 percent of total U.S. mortgage origination Origination The process through which a mortgage lender creates a mortgage secured by some amount of the mortgagor's real property. Notes: Also known as loan origination, everyone must go through the origination process when securing a mortgage for a piece of real volume projected for the aforementioned a·fore·men·tioned adj. Mentioned previously. n. The one or ones mentioned previously. aforementioned Adjective mentioned before Adj. 1. six- to seven-year period, and will not significantly impact the economy or the mortgage lending industry. "I think the subprime mortgage market has been useful to many people over the past decade to get them into a house or to help people who would otherwise not be qualified, and it's easy to look at those who default--but it's also possible to forget those who didn't default," said Cagan. "After this is over in a couple of years, we're going to get back to the subprime mortgage market serving its traditional and useful place in society and in lending, and sound lending will go on." |
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