No need to worry about hybrid ARM resets

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Rising mortgage interest rates have spurred concerns that hybrid adjustable-rate mortgages will reset and cause a new wave of problem loans, but such concerns are largely unfounded, according to Lender Processing Services.

In its latest Mortgage Monitor report, LPS analyzed the outstanding hybrid ARM population and found that the majority (63 percent) have already reset from their initial rates. Of the remainder, three-quarters were originated in post-crisis years, when more than 60 percent of loans had credit scores of 760 or above, which bodes well for their future performance, LPS said.

Of the hybrid ARMs originated during the easy-credit days of the bubble years, interest rates would need to jump a full 3 percent (300 basis points) for hybrid rates to increase.

Indeed, most of those borrowers will likely see their initial rates, and therefore their monthly mortgage payments, decrease, not increase, when their loans reset, according to LPS.

Source: lpsvcs.com.