Financial Times: Reset loans add to US home woes

[marmar]

Reset loans add to US home woes
By Saskia Scholtes in New York

Published: September 1 2008 23:38 | Last updated: September 1 2008 23:38

The stricken US mortgage market is set to suffer further setbacks in the next two years as $96bn of risky home loans sold with initial flexible payment options switch to more stringent terms.

These will raise borrowers’ monthly payments by about 60 per cent.

The changing terms could more than double the number of borrowers falling behind on so-called “option adjustable rate mortgages” issued between 2004 and 2007.

This is according to research published Tuesday by Fitch Ratings.

Option ARMs allow borrowers to choose a low minimum monthly payment that often falls short of the interest due on the loan, typically for five years.

The difference between the minimum and the full payment is added to the mortgage balance.

This ability to borrow more before having to start repayment is known as “negative amortisation”.

At the five-year mark, the loan terms are “recast” and the monthly payment is increased to ensure the full repayment of the loan by maturity. ......(more)

The complete piece is at: http://www.ft.com/cms/s/0/02222eda-7871-11dd-acc3-0000779fd18c.html

[4_TN_TITANS]

1. 60%???

That would be another $600 per month if I didn't have a traditional mortgage. Good God, this will be a javelin in the coffin.