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Increased Defaults as Interest-Only Loans Recast -Fitch

The ghosts of originations past could
still come back to haunt the housing industry according to a new report from
Fitch Ratings.  The company says that half
of those borrowers who have loans in performing residential mortgage backed securities
(RMBS) are facing increases in their mortgage payments over the next five
years.

Fitch says the mortgages that will
be affected by increases are those with adjustable interest rates (ARMs), loans
that have had interest only payment features (IOs), and loans that were
modified to save or redeem them from default. 
Fitch notes that payment increases have historically led to high rates
of default with a correlation between the size of the payment increase and the
default rate.  

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