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NEW YORK, Dec 4 (Reuters) - Some half a trillion dollars in U.S. mortgages will reset at higher interest rates next year.
Payment shock will cause home defaults and foreclosures to keep escalating.
Here are some forecasts of the number and type of mortgages that face resets, as well as the ripple effect the adjustments could have on the mortgage bond markets:
--About $500 billion of adjustable-rate mortgages (ARMs) will reset in 2008. Of that, about $200 billion will refinance into fixed-rate mortgages.
--The FHASecure program should help $50 billion of subprime mortgages refi into Ginnie Mae pools.
--"Importantly, these projections do not even take into account the possibility of higher loan limits. We estimate that the bill passed by the House in May raising limits to as high as $625,000, could trigger a one-time refi wave of $50 billion out of jumbos into agencies" mortgage bonds issued by Fannie Mae FNM.N and Freddie Mac FRE.N.
--$501 billion of resets in 2008 would follow $307 billion in 2007. The total would be divided as follows: $98 billion from agency mortgages, $64 billion from prime loans, $34 billion from Alt-A, $305 billion from subprime, $1 billion from option ARMs.
"Subprime ARM resets were one of the catalysts for the mortgage crisis. Our estimated schedule for adjustable rate mortgage resets (when low-interest teaser rates reset) and recasts (when the pay-option expires and borrowers are required to pay the fully amortized rate) suggests the worst of residential mortgage credit deterioration has yet to be seen across the country."
--Monthly reset volume for subprime adjustable-rate mortgages peak at $42 billion in March 2008. Monthly recast volume for pay-option ARMs peaks at $24 billion in June 2010.
--Forecasts 2008 quarterly resets at $125.5 billion in Q1, $150.4 billion in Q2, $156.5 billion in Q3, and $102.1 billion in Q4, for a total of $534. 5 billion.
--Resets estimated at $118.1 billion in current quarter.
--"Of the $454 billion of subprime resets between 4Q 2007 and 4Q 2008 a total of $62 billion could end up in GSE pools, $191 billion refinanced through the subprime market and $200 billion of resets could be without a home, both figuratively and literally."
Federal Reserve Governor Randall Kroszner said on Nov. 30 that monthly payments for an average of about 450,000 mortgages per quarter are scheduled to reset to a higher rate for the first time.
Robert Steel, Treasury undersecretary for domestic finance, on Nov. 19 said 2 million subprime mortgage loans are due to reset to higher interest rates in the next year and a half. (Reporting by Lynn Adler)