Mortgage Increases Blunted
The struggling housing market appears as if it will sustain less damage than expected this year from a spike in the monthly payments on hundreds of thousands of exotic adjustable-rate mortgages.</br></br>The number of such loans scheduled to adjust to higher payments this year has shrunk. Lower-than-expected interest rates, coupled with efforts to aggressively modify loans, are likely to mute payment shocks for some borrowers. Many others already have defaulted on their loans even before their payments adjusted upward.</br></br>"The peaks of the reset wave are melting very quickly because the delinquency and foreclosure rates on these are loans are already very high," says Sam Khater, senior economist at First American CoreLogic.</br></br>The housing market still faces enormous challenges, and a full recovery is likely to take years. The threat posed by resetting payments, Mr. Khater says, is "a drop in the bucket" compared to problems posed by the sheer volume of borrowers who owe more than their homes are worth, known as being "under water."</br></br>Still, for years, housing analysts have worried about the threat of an aftershock from a big spike in mortgage defaults from so-called option adjustable-rate mortgages, which require low minimum payments before resetting to sharply higher levels, and "interest-only" loans, for which no principal payments are due for several years.