Magazine article American Banker

Adjustable Mortgages Have Higher Default Rate: GE Mortgage Official

Magazine article American Banker

Adjustable Mortgages Have Higher Default Rate: GE Mortgage Official

Article excerpt

Adjustable Mortages Have Higher Default Rate: GE Mortgage Official

A leader in the mortgage insurance business says his company's early data indicate a higher default rate for adjustable-rate mortgages than for traditional mortgages.

"Lenders are using adjustable rates to pass the interest rate risk on to the homebuyer,' said Claude Pope, president of General Electric Mortgage Insurance Co., Raleigh, N.C. "But I think they're just trading it for credit risk.'

Only 12% of his company's insured loans are adjustable rate, Mr. Pope said, while those loans are causing more than 16% of the claims against GE Mortgage.

"This is very early data because we've only been in the adjustable-rate business a year or two--so we had to extrapolate a bit,' he told an audience of lenders here at a conference of the Mortgage Bankers Association. "But it doesn't take a computer to see that's a pretty substantial difference in a relatively short time.'

Mortgage bankers attending this conference are spending much time on adjustable-rate loans, as they sort through the wide range of prices and structures that are flooding the market.

They are particularly concerned that lenders are too willing to qualify buyers for loans, without determining if the borrower can make the payments after they've been increased because of inflation.

Mark Riedy, executive vice president of the Mortgage Bankers Association, said about 60% of mortgage loans made today are adjustable rate--up from 25% just three years ago. …

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