Clock is running down on 'cheap' (US) mortgages
Fewer than 10 percent of the conventional conforming loans will reset in 2006-2007, but nearly two-thirds of sub-prime loans will. That is because a large portion of the sub-prime loans are two-year adjustables, says Berson, the Fannie Mae chief economist.
Berson offered a typical example of what the industry calls a "2-28," an ARM in which the interest rate is fixed for the first two years and then adjusts regularly for the next 28 to whatever index the loan calls for. The average yearly cap on this loan is 2.3 percentage points per year.
If the consumer took out this two-year ARM in December 2003, he started out paying a typical rate of 7.7 percent, Berson said.
"You would be getting a letter from your lender this month telling you that next month, your rate would be going to 10 percent."
Roughly speaking, a consumer's monthly bill could rise from $330 to as much as $1,425 to $1,755.
Berson offered a typical example of what the industry calls a "2-28," an ARM in which the interest rate is fixed for the first two years and then adjusts regularly for the next 28 to whatever index the loan calls for. The average yearly cap on this loan is 2.3 percentage points per year.
If the consumer took out this two-year ARM in December 2003, he started out paying a typical rate of 7.7 percent, Berson said.
"You would be getting a letter from your lender this month telling you that next month, your rate would be going to 10 percent."
Roughly speaking, a consumer's monthly bill could rise from $330 to as much as $1,425 to $1,755.