There’s an article in the New York Times about adjustable rate mortgages and their impact on the US housing market:
House prices will need years to work off their irrational values, more people are going to lose their homes and Wall Street can probably look forward to some more nasty surprises.
In fact, the mortgage meltdown has arrived at something of a turning point. So far, most of the loans gone bad were among the worst of the worst. Some were based on outright fraud, either by the lender or the borrower. In many cases, buyers were never going to be able to make their monthly payments and were instead banking on a rapid appreciation in home values.
But the pool of people falling behind on their house payments is starting to widen beyond this initial group, and adjustable-rate mortgages are the main reason. Starting in the spring of 2005, these mortgages began to get a lot more popular, largely because regular mortgages no longer allowed many buyers to afford the house they wanted.
The drop in the US market so far has happened before the bulk of adjustable rate mortgages jump up to their new rate. According to credit suisse the peak mortgage reset will happen in October when more than $50 billion worth of ARMS will switch over to their new rate for the first time.