Report: Resets Not Big Problem as of July

Over 50% of the subprime 2/28 adjustable-rate mortgages in foreclosure in July were less than two years old and had not yet gone through an upward reset of the interest rate, according to a report sponsored by the Milken Institute.The report by James Barth and three other researchers at the Santa Monica, Calif.-based economic think tank indicates that 57% of 2/28 ARMs and 87% of 3/27 ARMs in foreclosure never went through a reset. And they argue that subprime mortgage foreclosures are going to be a problem because house prices are not rising and subprime borrowers are having trouble refinancing their loans. "Without home price increases, hybrid loans will surely exacerbate the foreclosure problem if interest rates reset upward, but they are not the basic cause of it," the report says. Mr. Barth is a senior fellow at the Milken Institute and Lowder Eminent Scholar in Finance at Auburn University.