Is there any good news for mortgage borrowers? Well, there is some. Because of aggressive monetary easing by the Federal Reserve, short-term interest rates have fallen enough that the threat of a “reset crisis” on adjustable-rate mortgages has abated. While the stress in credit markets has caused the spread between the Fed Funds Rate and LIBOR to widen, the fall in both rates has been sufficient to take away the pain of resetting mortgage payments once “hybrid” mortgages conclude their fixed-rate period.
We discussed this phenomenon in “So what inning are we in now?” and Jennifer Bjorhus from the Saint Paul Pioneer Press has written an article discussing mortgage reset and its relationship to housing and mortgage performance.
“Borrowers are increasingly showing a propensity to default as their equity position erodes. They’re just sending in the keys,” said Kragenbring, the Advantus Capital Management vice president. “It’s a very real phenomenon.”