The share of U.S. borrowers with home loans who are vulnerable to rising interest rates is small and helps mitigate the potential risk to the economy from a slowdown in housing, according to a Mortgage Bankers Association report released Tuesday.
The analysis of the U.S. housing and mortgage markets said about 85 percent of homeowners either own their homes outright or hold fixed-rate mortgages.
The remaining 15 percent of homeowners hold adjustable-rate and nontraditional mortgages. Still, the report said the percentage of borrowers truly vulnerable to an increase in interest rates is likely lower than that.
Of all borrowers with adjustable-rate mortgages, nearly 4 percent hold what are known as jumbo loans, indicating the mortgage holder has high income. Another group of adjustable-rate mortgage holders have been in their loans for years and their payment behavior is known, the report said.
"There is only a small percentage of borrowers that are potentially vulnerable to an increase in rates or other economic shock," wrote Michael Fratantoni, senior director of single-family research and economics for the Mortgage Bankers Association, and lead author of the analysis.
Low mortgage rates have helped sustain a rally in housing for more than four years, creating robust demand that has driven prices up by double-digit percentages in some areas.
According to some economists, soaring home prices have led more buyers to choose adjustable-rate and other nontraditional mortgage products to afford homes in ever-costlier regions, such the U.S. coastal areas.
That rising share of nontraditional home loans has led to growing concerns about overextended credit and a potential increase in defaults when long-term rates start to climb.
The Mortgage Bankers Association, in its analysis, said a high percentage of nontraditional loans if layered with other market-level risks would increase the likelihood of a slowdown in a local housing market.
Those risks include a high and sustained rate of home price appreciation, a decline in employment, a significant share of speculative investment in the market, a significant share of condo sales relative to total sales and an unusually large share of mortgage products that require less documentation than normal.
But the group's report also listed mitigating factors, including strong consumer spending and steady job growth, growing household net worth, liquid financial markets, widespread securitization and effective regulatory oversight, among others.
