Reply #1: U.S. Homeowners, Gambling on Rates, Choose Adjustable Mortgages

[ze_dscherman]

Good morning to those who live in the U.S. - it's early afternoon in Germany! Found this interesting bit on mortgages, that fits many of the concerns about yet another bubble:


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Mortgage lenders are luring consumers to so-called ARMs by offering introductory charges that are about 2.5 percentage points below fixed mortgages for one to seven years.

The number of Americans choosing ARMs rose to a three-year high, the Mortgage Bankers Association of America said yesterday. While the shift may buoy the housing market by allowing people to borrow at initially lower rates, it leaves consumers vulnerable to a surge in rates once the introductory period is over, said Diane Swonk, chief economist at Bank One Corp. in Chicago.

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Interest-rate futures contracts show investors expect the Federal Reserve to raise its benchmark interest rate by a quarter point to 1.25 percent by April, as economic growth accelerates. Adjustable mortgages are linked to money-market rates, which in turn track the overnight bank-lending rate set by the Fed.

U.S. consumers with ARMs are more likely to make late payments or land in foreclosure, according to the MBA. Mortgage applications for adjustable loans jumped to 23 percent in the week ended Aug. 15, from 13 percent in June, according to the MBA. That's the highest level since May 2000.

More: http://quote.bloomberg.com/apps/news?pid=10000103&sid=aql36AMawiL4&refer=us