Mortgages That Haunt

About 16% of subprime adjustable mortgages are now 30 days or past due, according to the U.S. Mortgage Bankers Association. Consumers who took out adjustable mortgages (simply known as ARMs) are having difficulty dealing with the higher interest rates that go into affect when the ARMs reset.

The foreclosure rate for subprime loans hit a record high of 3.23% in the first quarter of 2007.  Even Fed chairman Ben Bernanke is predicting there will be increases in foreclosures for subprime ARMs loans this year and even next year.

During the real estate boom that ended in the U.S. in 2005, lenders made it too easy for consumers to qualify for big mortgages on homes they wanted to buy.  ARMs were the perfect gimmick for the time: A consumer that might have experienced difficulty with a regular mortgage was often able to qualify for an ARMs subprime loan that came with guaranteed low payments for the first two to three years before they resent to market interest rates.

All is fine with these types of mortgages when the market for real estate is rising because when the ARMs reset to higher interest rates, consumer could have “flipped” out of their properties or even refinanced.  Unfortunately, the U.S. property home market has gone the opposite way (prices are declining) since 2005.  In essence, what was a great sales tool to sell a home — the ARMs — has become the mortgage that haunts.

I continue to predict big problems for the U.S. housing market — we haven’t seen the bottom yet.  The price charts of the largest U.S. home builders all look like the next leg of the U.S. property market is about to fall, causing financial problems for consumers and subsequently hardship for the American economy.

NEWSFLASH — Switzerland’s Central Bank raises it key bank rate to a six-year high and reports more rate increases are to come. Interest rates around the world are rising, placing pressure on the U.S. to keep rates at their current level or to even raise them to support the weakening U.S. dollar.