The graphic at right comes from The Wall Street Journal and it illustrates something that we all intrinsically know: Sub-Prime ARMs foreclose at a faster pace than all other home loan types.

When adjustable rate mortgages reach the end of their “fixed rate” period, some homeowners are unprepared for the upward-adjusting mortgage payments and that can lead to payment shock.

It doesn’t mean that sub-prime mortgages are bad for all homeowners, however.

A little known fact: Nearly all sub-prime ARMs carry an initial fixed period of 24 months or more. This means that the sub-prime borrower has at least two years to make financial adjustments that include:

1. Paying collections, charge-offs and other delinquent accounts
2. Making timely payments on loans, credit cards, and open charge accounts
3. Reduce his monthly debt load with systematic payments to creditors

All of these actions help the homeowner ascend from sub-prime borrower status and into the realm of “prime” loans.

With a plan of action and the will to carry out that plan, a sub-prime borrower can improve his credit standing in the eyes of mortgage lenders in less than two years. Then, he can remortgage into a new (fixed?) loan before the sub-prime ARM’s two-year fixed period ends.

This is a terrific method for reducing sub-prime ARMs in foreclosure — improve a homeowner’s credit rating so they can leave the sub-prime world on their own accord and before their payment ever has a chance to change.

This entry was posted on Friday, June 15th, 2007 at 3:48 pm and is filed under Cincinnati Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.