A Jumbo ARM Doesn’t Look Good At The Beach!
October 8th, 2009 categories: Mortgages & Financing, The Market
I am generally an optimist. I believe that in most things, silver linings can be found. Over the last few months we have seen a trickle of good Honolulu real estate news (increasing sales and shrinking inventory as an example) turn into a stream. As long as a buyer is a long-term investor, I am always comfortable buying now.
As for selling, we very well may be at a bottom in the market, so does this mean it is a bad time to sell since rising home prices could be coming? My short answer is I don’t know. The long answer is that according to many much smarter watchers of the economy, there are things like a looming commercial mortgage default boom, expanding unemployment and increasing national deficits. While reading Forbes on-line this morning they added another potential problem for the financial industry to work through…resetting adjustable rate jumbo mortgages.
“But looming behind these ordinary jumbos, there’s a worrisome, wealthy man’s subprime crisis in the works. Many of the well-off took out “option-ARM” or “Alt-A” loans. The attraction: Little or no proof of income to qualify for the loans and, often, artificially low payments for five years after they were granted. Problem is, these loans demand higher catch-up payments in later years so even if rates fall, monthly bills will rise.” CLICK HERE TO READ THE ENTIRE FORBES ARTICLE
I can tell you that among the people I know, I am not aware of any that have used an adjustable jumbo to buy a property. If this is the case (hopefully it is) for the balance of Honolulu’s jumbo buyers, maybe Oahu can be spared the pain of the shake out. On a national basis, many of these loans were take out and the resetting of the base interest rate is on the horizon. If interest rates remain low, these barrowers could actually experience a reduction in their monthly payments, wouldn’t that be great. But if rates rise, they could experience significant increase in monthly payments and the fear is that this will drive them into defaulting on the loan. Increasing defaults would lead to more foreclosures and this could act as a damper on markets where these homes are located.
If you would like to discuss your real estate needs, feel free to call me at 808-737-2093 or toll free at 877-737-2093. You can email me at keahi@lava.net.
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Lots of changes to come I am sure. All lender are shaking out and revamping.
……and the roller coaster keeps on rolling….