Troubles in ARM land?

Mountain of Mortgage Resets

This graph from Casey Research shows the Case-Shiller 20-City index alongside the total unsecuritized ARMs that are resetting in that particular month.

You can see how the ARM Resets are phasing out to almost 0 by 2014, but you can also see we are about to spike again around May through the summer of this year.  It will be interesting to see if the resets are at a low enough rate to allow home owners to continue to handle payments, or if they do in fact put more stress on house prices.

The real challenge is that most who qualified for these products originally can't qualify today, so they are 'stuck' with the resets.  Fortunately today the rates are so low that the resets might not be painful, but if they reset to an amortizing payment they'll feel that transition from interest only.  Also, if they reset to an adjustable payment, which most of these will, then if rates go up, and they will, we could see the ARM Reset impact felt in the future, as opposed to now:

Suzy and Jim got an 5 Year ARM Interest Only fixed at 5%, with an adjustment to Libor + 200, they adjust now and their rate is lower than than before, so they are excited.  Their payment doesn't go down because they convert from an interest only to an amortizing, so in essence their payment is about the same BUT they are now paying principal.  That's great.  If 3 years from now the loan adjusts to 8%, and they can't refinance to a fixed now, they'll be stuck with an annually increasing payment and that might make the hangover from ARMs a few years down the road.