In states where adjustable-rate or exotic mortgages were more prevalent than traditional loans, home values fell 39% on average, compared to a 5% decrease in more conservative states, according to Freddie Mac chief economist Amy Crews Cutts.
In a perspective published Monday, Crews Cutts said more traditional mortgages have saved many homes since foreclosures began mounting in 2007.
“The long-term, fixed-rate mortgage has emerged as an economic shock absorber for millions of households and thousands of neighborhoods during the current downturn,” Crews-Cutts said.
When subprime loans began to deteriorate and investors began pulling capital out of the market, many borrowers with adjustable-rate mortgages could not refinance and avoid the interest-rate resets. Subprime and ARMs accounted for nearly half, 47%, of all foreclosures started in the first half of 2010.
Crews Cutts went on to compare state home price indices vs. FRM totals for all 50 states and found that the states where home prices fell the most, fewer borrowers had prime FRMs, FHA or VA mortgages.