The resetting of adjustable-rate mortgages (ARM) is causing industry experts to fear for another flood of properties on foreclosure listings in New York. During the housing market bubble, many homeowners purchased houses that they could not afford to pay by using loans that require them to make an initial interest payment, deferring payments on loan principals for several years.
According to experts, the strategy was ideal only for a market where property prices and values are increasing and not for one where homeowners owe more on their mortgages than the value of their houses.
They said that these interest-only loans are expected to become unaffordable as homeowners will start to pay the principal. It is projected that monthly mortgage payments would rise to 75 percent.
Industry analysts said that the impending resetting of exotic mortgages will be the source of future troubles in the residential real estate market. During the housing boom, these loans were regarded as safe. But as it turned out, with recession and unemployment, these loans became the death trap that homeowners did not expect to survive, with thousands of them going to New York foreclosure listings.
Many industry analysts and homeowners who took out exotic mortgages are hoping for the housing market to recover and peak again. After three years of slump, the housing market is starting to show some signs of improvement, according to analysts. They said that home sales in July were so far the highest this year while August sales are giving signs to be even better.
Meanwhile, almost all major cities in New York have reported increasing home prices. But industry analysts are tempering their enthusiasm over the positive signs in the market, saying that it is still too early to tell whether the market is on its way to a real recovery.
Experts in the state and nationwide are predicting another wave of foreclosures brought about by the resetting of these exotic loans and the rising unemployment. Interest-only loans are not the only sword of Damocles hanging over the heads of homeowners. Pay option loans with principal balances increasing over time, are also threatening many homeowners.
But for now, the immediate threat is brought by 2.8 million interest-only loans which are worth a combined amount of $908 billion.
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