Repo House Listings in Arizona to Grow as ARMs Reset

Repo house listings are expected to grow in Arizona in the next two years as adjustable-rate mortgage loans taken out by Arizonian homebuyers during the housing boom reset to much higher rates in 2010 and 2011, according to Arizona real estate analysts.

More than 128,000 Arizonian mortgage borrowers took out ARMs during the boom. Even in early 2008 when repo house listings were already showing the risky results of ARMs, some mortgage lenders were still making ARMs.

Mortgage lenders, brokers and borrowers liked ARMs during the boom because they all initially benefited. The borrowers had very low monthly payments while lenders and brokers were able to entice many borrowers to buy homes and obtain loans from them.

According to analysts, borrowers who took out pay-option ARMs with teaser rates are the ones with the greatest risk of seeing their homes get added to repo house listings. These borrowers, who have been making very low payments every month, will be stunned to see that when their mortgage reset to the scheduled higher rates, their monthly payments will soar by as much as ten times their initial monthly payments.

According to Arizona analysts, around 8,600 ARMs across the state have already reset to their highest rates since the start of 2009, but the majority of ARMs taken out will reset next year and in 2011. The value of ARM home loans resetting in the next two years is estimated at over $30 billion.

Gregor Watson, an investor with San Francisco-based investment firm McKinley Capital Partners, said ARMs will affect the level of homeownership in Arizona and the ability of the Southwest to recover from the recession.

Watson and other investors are considering expanding into Arizona, as they expect more residential properties to get added to repo house listings when ARM loans in the state reset.

Based on mortgage data, the resetting of ARM loans will peak in September next year and in December 2011, with more than 3,700 ARM loans resetting in September 2010 and more than 3,600 ARM loans resetting in December 2011.

Phoenix loan broker Kathy Rhubottom added that she never worked out pay-option ARMs because she knows the danger borrowers would be facing. She said she always tried to discourage borrowers from considering ARM loans.

Thus, if Arizonian homeowners who took out these ARM loans are not able to modify them under the Making Home Affordable program before the scheduled resets, the risk is great that they will be seeing their homes get added to repo house listings.

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