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Realistbear

U S Mortgage Rates Explode As Subprime Woes Soar

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http://biz.yahoo.com/ap/070614/mortgage_rates.html?.v=1

AP

Rates on 30-Year Mortgages Jump

Thursday June 14, 11:42 am ET

By Martin Crutsinger, AP Economics Writer

Rates on 30-Year Mortgages Jump to the Highest Level in 11 Months

WASHINGTON (AP) -- Rates on 30-year mortgages rose for a fifth straight week, hitting the highest level in 11 months as prospects dimmed further for possible rate cuts from the Federal Reserve.

http://biz.yahoo.com/ap/070614/late_mortgages.html?.v=11

AP

Foreclosures Up on Certain Mortgages

Thursday June 14, 11:32 am ET

By Jeannine Aversa, AP Economics Writer

Foreclosures Surge in Subprime Market, Industry Group Reports

WASHINGTON (AP) -- Late payments and new foreclosures on adjustable-rate home mortgages made to people with spotty credit histories spiked to all-time highs in the first three months of this year.

In the US mortgage rates are determined by the bond market whereas in the UK mortgage rates are more sensitive to Muppetry.

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It had to be RB...have they gone up a bit, to sort of where they were last year?

More of a fizzle at the moment I'd say...

They think the US mortgage rates are taking off again and are already at an 11 month high. Just when the repossession phase is warming up. Not so sure about a "fizzle" I think it is Great Crash 2 in all its awesome power!

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Subprime's gonna be a picnic in the park compared to the devastation to be caused by all the exploding ARM resets later this year.

Then you'll really come to understand what a property crash is all about!

Sorry, Whoops but could you explain ARM resets? And does this just apply to the US?

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Guest wrongmove
It had to be RB...have they gone up a bit, to sort of where they were last year?

More of a fizzle at the moment I'd say...

:P

No, they have EXPLODED !!!! :o

There is shrapnel everywhere in the posionous mud of the great miracle crash.

:lol: :lol: :lol:

Well, yeah, actually, they have gone up a bit - nearly as high as they were this time last year.

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Sorry, Whoops but could you explain ARM resets? And does this just apply to the US?

Adjustable Rate Mortgages (Teasers in the trade over there). Essentially a discount for the first 2-3 years then resets to standard mortgage rate. So borrow in 2005 at say 3.5% and in 2007 suddenly face the prospect of paying 7% !

Likewise they have interest only that resets to repayment so a double whammy.

Of course nothing like that exists in the UK as there is no requirement to ever pay off your debts with an IO mortgage (well not for 25 years).

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ARM => Adjustable Rate Mortgage

There was an article out last week in the UK press claiming that 20% of all UK mortgages are due to reset later this year as well, so without the ability to re-mortgage, many will be forced to try and sell up as they won't be able to meet the new terms of their loans.

what proof do you have that they cant afford the new mortgage rates?

they could be paying an extra 100 or so- but surely that isnt enough to force them to sell

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what proof do you have that they cant afford the new mortgage rates?

they could be paying an extra 100 or so- but surely that isnt enough to force them to sell

You're missing the point. As in most things, there will be a spread. Some people will be on the edge and this will be a big enough blow to shift the situation in to unaffordability for them. Others will be a long way from difficulty and will absorb the cost rise easily. The average will be somewhere between. What is important is: How much of the distribution is close enough to find it unaffordable.

Don't you see how pointless it is to consider hypothetical single cases in a binary logic manner? It doesn't prove anything. Averages and distributions, that's what count nearly always. What can be said is that some people will find this to be the final affordability straw. How many is the interesting question that should be addressed.

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Guest d23
ARM => Adjustable Rate Mortgage

Similar to our discounted variable rate mortgages, etc. As in the UK, most were taken out during the past few years and are about to reset to much higher rates when the discounted period expires in the second half of this year, meaning many will find their monthly mortgage payments rising by two to three fold: more in fact, if bonds continue to tank.

There was an article out last week in the UK press claiming that 20% of all UK mortgages are due to reset later this year as well, so without the ability to re-mortgage, many will be forced to try and sell up as they won't be able to meet the new terms of their loans.

not sure SVR mortgages are quite the same as the exploding ARM's so prevalent in the states

If you also consider the fact that around 70% of mortgages taken out in the last 2 years have been fixed at an average of 5% or more I don't think the 'shock' will be quite the same level of magnitude when these people reset / remortgage as it has been in the states.

In testimony to the Senate Banking Committee in September, Michael Calhoun, the President of the Center for Responsible Lending (CRL), showed an example of the most typical sub-prime loan, known as a 2/28, with an “exploding ARM” (adjustable rate mortgage). Buyers can qualify for this type of loan if the original (”teaser”) monthly payment is not higher than 61% of their after-tax income. At the end of two years, even without a rise in interest rates, the payment will typically rise to 96% of the purchaser's monthly income."
In 2005 and the first three-quarters of 2006, lenders made $900-billion (U.S.) in subprime loans. As of September, 2006, 80 per cent of all subprime mortgages were "Option ARMs." ARMs usually have features like "minimum payment options" (the principal you owe gets bigger over time), or "interest-only" payments. One out of every three home buyers in the first eight months of 2006 got some kind of pay-option mortgage -- that's up from one in five in 2005 and only eight out of a thousand in 2003.

Usually ARMs are referred to as 2/28, meaning payments are low for the first two years, and then increase by 40 or 50 per cent for the next 28 years. There is at least $1-trillion worth of option ARMs (41 per cent of the total outstanding) whose payments will increase in 2007.

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Guest grumpy-old-man
not sure SVR mortgages are quite the same as the exploding ARM's so prevalent in the states

If you also consider the fact that around 70% of mortgages taken out in the last 2 years have been fixed at an average of 5% or more I don't think the 'shock' will be quite the same level of magnitude when these people reset / remortgage as it has been in the states.

4% taken out 2 years ago, will now cost 6% imo, that's a pretty big jump isn't it ?

what type of jump are we talking about with regards to ARM resets then ?

don't forget, with credit tightening happening now (just) in the UK, previous applicants won't be able to get those good deals anymore when they come to remortgage & will have to pay higher rates, then add on those fees (haven't they jumped up a lot as well).

Then add on 2-3 years of living the high life, 2 new cars, those expensive holidays to "Dubai" the new Spain ;) , those house refurbs, new kitchens, bathrooms etc.....oh dear. :lol::lol:

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Subprime's gonna be a picnic in the park compared to the devastation to be caused by all the exploding ARM resets later this year.

Then you'll really come to understand what a property crash is all about!

"exploding arms resets" watch out there whoops, some lazy arsed part time journo will nick your phrase and use it with a nice image of a smoking gun if you're not careful ;) If I find it I'll post a link for you :D

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Likewise they have interest only that resets to repayment so a double whammy.

Of course nothing like that exists in the UK as there is no requirement to ever pay off your debts with an IO mortgage (well not for 25 years).

HSBC do "HomeStart" on a discounted rate. Homestart kicks off as IO then converts to repayment after three years. Taking that product on a 2 year discounted fix would be akin to an American exploding ARM. :ph34r:

Edited by b0rk

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