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There is a small amount of silver in the middle of this massive storm cloud – interest rates are dropping for many adjustable rate mortgages.
Some 420,000 hybrid ARMs are scheduled to reset in the coming year. For a while many observers were afraid that they would reset higher. Had that happened it certainly would have added to the flood of foreclosures. But thanks to the incredible disappearing interest rate they have dropped and some are now better deals than some fixed rate mortgages.
For many borrowers ARMs were a gamble. They allowed people who couldn’t afford the payments of a standard 30-year-fixed to buy houses. The laughable rationale for these loans was once the value of the houses increased borrowers could refinance before the end of the lower introductory interest rates. As a result, these loans went to a lot of what are now referred to as “the most vulnerable” borrowers. (Lenders, of course, had no reason to care about whether borrowers would be able to make good on loans that were just going to be palmed off on some other financial institution.)
Now it seems that ARMs may turn out to be a better deal for The Most Vulnerable despite the theory behind them. As interest rates have tanked the mortgages have refinanced themselves. Now if the borrowers can just keep their jobs…
Constantine von Hoffman is a veteran business journalist and author of the blog CollateralDamage, a satirical look at marketing and business.
Last 3 posts by Constantine von Hoffman
- The home price increase that isn’t - July 28th, 2009
- Why the increase in housing starts means trouble - July 21st, 2009
- Builders, Realtors attack new regs on home appraisal - July 14th, 2009
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