It Ain’t the ARM’s: What Really Causes Foreclosures

by Alex Stenback on December 6, 2007

As the world awaits the details of the Hope Now Deniallance’s plan to save the housing market (some details have leaked,) by freezing Adjustable Rate Mortgage resets, we wanted to leave everyone with a thought, and a couple of graphics.

It has become axiomatic that the foreclosure problems we face are a result of exploding and toxic ARM’s that have made mortgages unaffordable.  Now take a look at this graphic (via WSJ Marketbeat & Peridot Capitalist):

 

Notice that of the causes in this chart, the only one that can be directly impacted by policy action is the payment adjustment.  This should be a clue, though we do note that the percentage caused by adjusting payments will go up – these resets will peak early next year.

And now this, from a Boston Fed Study on Causes of Foreclosures in Massachusetts (PDF):

 
Click for larger graphic.

So, given this information, and knowing that The Plan is targeting payment adjustments on only a certain subset of subprime Adjustable Rate Mortgages, we ask, how much good will this actually do?

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The Mortgage Reports Blog
December 10, 2007 at 5:01 am

{ 5 comments… read them below or add one }

Nate December 6, 2007 at 2:36 pm

It doesn’t seem the governments plan could hope to fix the problems in mortgages and housing. At best it’s political cover, so the current administration can say they did something. Too few people will be helped by this to do much other than possibly slow down the rate at which foreclosures are increasing. But if these plans just postpone the inevitable, it will just drag out the time needed for the correction to complete. Which is worse? A severe but shorter correction where house prices fall significantly in many locations. Or a longer correction where housing stagnates for many years, while inflation slowly chips away at the real value of the property.

Teresa Boardman December 8, 2007 at 10:59 am

thanks for writing this. None of the people that I am talking to each week are going through foreclosure becasue of an ARM. I am finding divorce, and people we refinanced to a higher mortgage amount and can’t keep up with the payments and some job loss situations.

Thomas Johnson December 10, 2007 at 10:59 am

Is there a category for “Not taking obligations seriously?” Or, calling your second, third and fourth house “owner occupied”?

If, according to NAR, in 2005-2006 40% of sales were second homes, then where are these woebegone “victims ” coming from?

Bank Foreclosures June 28, 2008 at 3:41 pm

Thanks for sharing, nice post and I agree with it.

sash July 14, 2008 at 9:24 pm

Very data driven and helpful. Thank you for posting.

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