Fannie Mae Sees Mortgage Risksby
Thanks to economist David Kotok of New Jersey money manager Cumberland Advisors for pointing out a fascinating economic commentary by David Berson, the chief economist of mortgage giant Fannie Mae (pictured).
Berson is worried about whether people with shaky finances are going to get hit hard when their adjustable-rate mortgages do what they were born to do--i.e., adjust. He wrote his commentary on May 31, but it remains highly relevant today.
According to research by Anton Haidorfer, a Fannie Mae senior economist, there isn't that much to worry about with prime, conventional, conforming mortgage loans. Rates on less than 10% of them will adjust within the next couple of years, rising to around 20% in 10 years. One reason for the small share that most of those loans aren't ARMs. And those that are ARMs tend to stay fixed for the first five years or more.
On the other hand, nearly 20% of Alt-A mortgages will reset within the next two years, rising to more than 40% within five years. "And, at the extreme, nearly 60% of subprime loans will reset within the next couple of years, rising to around 70% within the next three years."