Bad News on ARM Mortgages

While much of the mortgage news over the last few days has focused on the sub-prime and "low doc" loans, rumors are beginning to circulate about rising default rates on adjustable rate mortgages (ARMs).

While much of this talk may be just be the type of rumour that spreads when an investment starts to get the type of news flow sub primes have earned over the past few days, that won't keep investors from selling the product.

Apparently big banks have cut or are in the process of cutting, the lines of credit originators use to fund loans before they sell them to investors. At the same time many of these banks are trying to force originators to buy back many of the mortgages issued over the past few months that have any kind of late pay. The result is a liquidity squeeze that is killing mortgage originators.