Subprime Mortgage Meltdown is Just the 1st Wave
The subprime mortgage meltdown has been the focus of foreclosure news during the past year or so, as record numbers of owners defaulted on their mortgage payments.
But it is likely to be followed by an even bigger tidal wave of foreclosures among owners with good credit, reports the New York Times in a page one article today.
Although these borrowers qualified for mortgages with far better “alt-A” terms than subprime borrowers got, “many of them owe more than their homes are worth. Analysts believe that many will not be able to or want to make higher payments,” now that the foreclosure crisis has driven down housing values, the newspaper explains.
A major cause for concern is a proliferation of so-called option ARM loans among these borrowers, which permit them, for the first several years, to make monthly payments that do not even equal the amount of interest due. Those who pay less than the interest due, year after year, will eventually see huge increases in their monthly payments, when they are required to pay principal and interest on a larger amount than they originally owed, the Times writes.
“Subprime was the tip of the iceberg,” predicts Thomas Atteberry, president of the First Pacific Advisors investment firm in Los Angeles. “Prime will be far bigger in its impact.”
