While roughly one-third of outstanding subprime mortgage loans are scheduled to reset into higher interest rates, mortgage issuers are expected to be waiting in the wings with a new suite of affordability products to help keep mortgage payments manageable, according to Fitch Ratings. And while prime and alt-A borrowers are anticipated to favor fixed-rate products, subprime borrowers are likely to remain in the adjustable-rate sector.
"This is really how the industry is fighting back," said Mark Douglass, a senior director at Fitch during a Dec. 15 conference call. Adjustable-rate mortgages alone have climbed in the subprime sector from some 60% of overall volume in 2003 to more than 80% of issuance as 3Q05. According to Friedman Billings Ramsey hybrid ARMs constitute about 89% of the subprime ARM sector.