Tags: million | arm | resets

Next Housing Woe: 1 Million ARM Resets

Monday, 15 Jun 2009 12:24 PM

By Dan Weil

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The next shoe that looks ready to drop for the housing market is the adjustable rate mortgage sector.

ARMs, popular during the real estate boom, have low initial payments and then reset at loftier levels down the road.

About 1 million option ARMs will reset higher during the next four years, according to First American CoreLogic.

About 75 percent of those loans will shift in 2010 and 2011, with the zenith looming in August 2011, when about 54,000 loans reset, the data show.

The resets will pressure many homeowners, making their payments unaffordable.

“The option ARM recasts will drive up the foreclosure supply, undermining the recovery in the housing market,” Susan Wachter, professor of real estate finance at the University of Pennsylvania’s Wharton School, tells Bloomberg News.

“The option ARMs will be part of the reason that the path to recovery will be long and slow.”

RealtyTrac reports that foreclosures totaled more than 321,000 in May, the third-highest monthly rate since the research firm began its report in January 2005, and the third straight month with more than 300,000 foreclosures.

To be sure, some found a bit of comfort in the fact that foreclosure filings fell 6 percent in May from April.

“It would not be a huge surprise to see the numbers level off a little bit at this point," Rick Sharga, RealtyTrac's senior vice president for marketing, told Associated Press.

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