Bank of America Sees More Mortgage Trouble Ahead

November 26, 2007 No Comments »

According to data calculated by Bank of America Corp., interest rates on $362 billion in adjustable-rate subprime mortgages will reset in 2008.

Banc of America Securities estimates that $85 billion in subprime mortgages will reset during the current quarter, and the same amount will reset in the first quarter of 2008, followed by $101 billion in the second quarter.

Another $152 billion of other loans will also reset in 2008, including jumbo loans and Alt-A mortgages that have an adjustable-rate feature.

What that means is a new flood of loan defaults, despite the fact that many of the early defaults were due to things like mortgage fraud and bad underwriting.

The problem is compounded because many of these troubled borrowers obtained financing through means that are no longer viable, or simply not available, such as through low or no-documentation loans with ultra-high loan-to-values.

“There is a large amount of borrowers who are in products that either no longer exist or that they no longer qualify for,” said Banc of America Securities analyst Robert Lacoursiere.

For these borrowers, who would typically refinance and move on to another hybrid ARM, the only choice may be foreclosure.

The Mortgage Bankers Association estimates that 1.35 million homes will enter the foreclosure process this year, and another 1.44 million will do so in 2008.

And foreclosures generally drop the value of surrounding neighborhood homes, adding downward pressure to an already falling housing market.

Not to mention that bad mortgages are probably still being underwritten and funded on a daily basis despite all the current problems and increased scrutiny.

Leave A Response