Fears of another recession are growing, particularly as mortgage lending becomes riskier in an inflated housing market, reports Realtor.com. Some loan officers are loosening their lending standards while buyers are spreading themselves too thin to win bidding wars. A growing number of borrowers are also considering adjustable-rate mortgages (ARMs), which offer cheaper payments that increase down the road.
As borrowers take financial shortcuts to stay afloat in a high-priced market, experts warn that the risks aren’t worth the payout, especially in the event of another recession.
More borrowers are now considering adjustable-rate mortgages, or ARMs. The loans initially offer cheaper payments that can later increase—a risk that is causing some PTSD for those who don’t want a repeat of the Great Recession. About 8.2% of all mortgage applications were for ARMs in the week ending June 3, according to the Mortgage Bankers Association, an industry group. That’s compared with just 3.9% in the week ending June 4, 2021.
“Anytime people are looking at adjustable-rate mortgages … there’s risk,” says Sarah Mancini, staff attorney at the National Consumer Law Center. “Most people’s income doesn’t fluctuate with interest rates. … [And] people are not good at reading these very complicated [lending] documents.”