Tuesday, January 12, 2010
Over $47 Billion in Prime and Alt-A Interest-Only Loans to Recast Over Next Year
More than $47 billion in prime and Alt-A mortgages where borrowers are currently making interest-only payments are set to recast to fully-amortizing payments over the next year, according to Fitch Ratings.
“This recast exposes borrowers to an average payment increase of 15% and possibly higher if interest rates increase,” the company said in a release. “Over the next two years, a total of $80 billion of prime and Alt-A loans, and a total of $50 billion Subprime loans are due to recast.”
The news is worrisome considering the fact that 60-day delinquency rates have risen more than 250% in the 12 months following previous recasts for prime and Alt-A loans.
“While only 3.3% of prime loans are 60 or more days delinquent prior to recast, delinquencies the year after recast increased to 9.3%. Similar effects have been seen in Alt-A and subprime, with delinquencies increasing from 12% to 29% for Alt-A, and from 20% to 58% for subprime.”
Then there’s the negative equity issue, which further exacerbates the situation; essentially many that could avoid a recast by refinancing into low rate mortgages are out of luck.
Fitch said the current loan-to-value (LTV) ratios for prime and Alt-A loans are 118 percent, with 64 percent of borrowers underwater.
Additionally, the vast majority of interest-only loans set to recast are adjustable-rate mortgages, adding to the severity of payment shock.
“Of those IO loans recasting in the next two years, 99% of prime, 94% of Alt-A, and 90% of subprime are ARM loans.”
Oh, and most of these borrowers qualified for the loans based on their ability to make the initial interest-only payments rather than the fully amortized principal and interest payments, often while simply stating income.
When your life changes, your mortgage should, too.
For Information regarding your situation
Call Gene Neal 877-276-6400 Ext 101
631-687-3510 Ext 101