January 15, 2008

Blame It On The ARM?

I was reading an article today on AOL news about the impact the ARM (The Adjustable Rate Mortgage) has had on today’s real estate market:

“10 U.S. states had the highest share of outstanding adjustable-rate mortgages in the third quarter of 2007. The share of adjustable-rate mortgages in the 2007 third quarter was provided by the Mortgage Bankers Association. The foreclosure rate for November 2007, was supplied by RealtyTrac. The average credit scores for November, 2007, came from NationalScoreIndex.com operated by Experian Consumer Direct. The average credit score for the U.S. is 693. Any score at or below 620 is considered subprime.”

Of course California was up there due to escalating home prices where many home buyers had to look to the ARM to find a mortgage that gave them an affordable monthly payment. Many adjustable mortgages started off with a teaser rate or was locked into a fixed rate for short period of time. Then once that time expired, the adjustable rate started to climb.

Areas of great speculation (investor driven), is where the highest rate of short sales and foreclosures are noted. Everyone was depending on the market to keep climbing to generate equity for those doing a 100% financing.

The ARM has it’s place and works well for some people. But too many used it just to get into a house.