Personal income growth is expected, by and large, to exceed upward movement in both the per-capita cost of energy and adjustable-rate mortgage payments upon rate reset among non-agency borrowers, according to a recent report by Friedman Billings Ramsey. And, while consumers may be spending less in general expenditures when their mortgage rates do reset - causing a dampening in economic activity - the behavior "should support timely mortgage payments," FBR's Michael Youngblood wrote in a report released last week.

Using the June 2006 federal funds futures contract, Youngblood estimates a 100% probability that the federal funds rate will reach 4.75% at the time of the Federal Open Market Committee's expiration. Some $287.1 billion of subprime ARMs and hybrid ARMs, on average, will reset within the next 14 months, according to FBR, with $128.5 billion of prime and $103.8 billion of alt-A mortgages resetting in the next 54 and 35 months, respectively. Simultaneously, retail gasoline, natural gas and heating oil prices have climbed by 18.1%, 15.3% and 49.7%, respectively, since the Fed began its tightening campaign in June 2004.

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