Ticking time bombs known as "adjustable rate mortgages"

Posted by: Prashant Gopal on January 4, 2008

Not much of a surprise that the two states with the highest percentage of the nation’s subprime adjustable rate loans are California and Florida, according to a recent USA Today article. Real Estate Bloggers put the data into a nice top ten list. Buyers used creative financing to pay for homes they otherwise couldn’t afford and speculators used ARMs to buy properties that they hoped to flip for a profit. California loans accounted for more than 17% of the nation’s subprime ARMs and Florida’s mortgages made up more than 12%. No other state was close. Arizona, which is also facing a massive real estate downturn, came in at No. 5 with 4.3%.

Oddly, Nevada, which has the nation’s highest foreclosure rate, didn’t even crack the top 10. Only about 2% of the subprime ARMs originate in Nevada. My guess is that it might have something to do with the state’s population, which is about 2.5 million compared to, say, California, which has about 37 million people.

Reader Comments

John

January 5, 2008 9:00 AM

Ticking timebomb? People have been successfully using ARMs for decades. You are doing your readers a disservice by characterizing all ARMs as ticking time bombs.

dman

January 12, 2008 5:13 PM

somone spammed this site on my blog and thought someone needs to say something about it! http://www.fakepaycheckstubs.com IS THIS LEGAL? No wonder why we have the subprime mess why have TODAY! When lenders USE FAKE DOCUMENTATION to help PUSH the loan through and hence MAKE thier commissions, everyone losses! This is SO dispicible and blatent!!! NOW BANKS ARE BAILING OUT THESE CROOKS??? SOUNDS LIKE Savings & Loan SCANDAL of the 80's ALL OVER AGAIN!!! See this site with your own eyes at http://www.fakepaycheckstubs.com

No ARMs

January 15, 2008 2:54 PM

ARMs have been and always will be a time bomb. Young borrowers today don't know about the big ARM craze in the 1980s, when, as interest rates went up, their motgages became too expenisve. there was a foreclosure boom then, too. ARMs look good on paper and tease unsuspecting borrowers with rates lower than FRMs. But interest rates never stagnate. They go up and they come down, but over the term of a mortgage, they will be at least what they would have been for a fixed-rate. How does one think banks decide what a intial ARM rate will be? They certainly aren't going to accept the risk of a lower rate of return than they would get from a FRM.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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