From the OC Register:
Subprime resets to peak through April 2008
More homeowners with subprime adjustable-rate mortgages face tests of their ability to handle higher monthly payments starting later this year, RBS Greenwich Capital Markets Inc. said.
Rates on about 3.25 percent of subprime-loan balances are scheduled to start to adjust in September, October and in April 2008, said Peter DiMartino, an analyst at RBS, the Greenwich, Conn.-based unit of Royal Bank of Scotland.
A total of 32 percent of balances face rate adjustments over the next 12 months, he wrote in a report, citing data from First American Corp.’s LoanPerformance unit.
Payment resets will range between 1 percent and 3 percent of outstanding subprime balances in the other months between this May and November 2008, and then fall below 1 percent in December 2008, DiMartino wrote. Another 5 percent of subprime loans will hit reset dates after 2008, he said.
“Borrowers seeking to avoid these increased monthly payments by refinancing their mortgage loans may no longer be able to find available replacement loans at comparably low interest rates,” hedge-fund manager Carrington Capital Management LLC warned in a prospectus last month for bonds backed by subprime loans made by Fremont General Corp., whose lending unit is based in Brea.
Typical subprime home loans carry payments that are fixed for two or three years, and then go up even without an increase in benchmark interest rates. The performance of loans made in the past two years – which have had some of the earliest delinquencies and defaults ever – could worsen because of a rise in short-term interest rates combined with tougher lending standards that reduce opportunities for refinancing.
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About $1.45 trillion of subprime mortgages are outstanding, accounting for about 15 percent of all U.S. home mortgages, according to Bear Stearns. Without refinancings, home sales, foreclosures or other loan payoffs, borrowers’ rates would eventually adjust on about 82 percent of subprime home loans made last year, up from 81 percent in 2005 and 52 percent in 1999, according to Credit Suisse Group.
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An adjustment from a 7 percent rate on a $300,000 subprime mortgage to 9.5 percent would boost the monthly payments from $1,996 to $2,523, the First American CoreLogic report said. Roughly 1.1 million foreclosures will result from resets on all ARMs made from 2004 through 2006, the report said.