Coming Soon: Interest-Only Mortgage Defaults

Its amazing what passes for “news” in some places: There is an interesting albeit well-trod discussion in Wednesday’s NYT on the rising defaults om Interest Only Mortgages.

Data from First American CoreLogic shows that interest-only loans have a greater likelihood of default: Nationally, about 18% of prime interest-only loans are at least 60 days delinquent.

NYT excerpt:

“Experts predict a steady drumbeat of defaults over much of the next decade as these interest-only loans mature. Auctioned off at low prices, those foreclosed houses could help brake any revival in home prices. . .

Still, interest-only loans represent an especially large problem. An analysis for The New York Times by the real estate information company First American CoreLogic shows there are 2.8 million active interest-only home loans worth a combined total of $908 billion.

The interest-only periods, which put off the principal payments for five, seven or 10 years, are now beginning to expire. In the next 12 months, $71 billion of interest-only loans will reset. The year after, another $100 billion will reset. After mid-2011, another $400 billion will reset . . .”

Go figure: If banks give mortgages to people who cannot afford them, they tend to go in to default in large numbers.

Who ever could have foreseen that coming . . . ?


The House Trap
NYT, September 8, 2009

See also:
Fitch: $134B of U.S. Option ARM RMBS To Recast by 2011
Business, Wire, September 08, 2009

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