Mathematical Scenario Examines Equity, Reset Sensitivity and Default

What happens when your ARM goes up?

SANTA ANA, Calif., Feb. 14 /PRNewswire-FirstCall/ -- First American Real Estate Solutions (RES(R)); the nation's largest provider of advanced property and ownership information, analytics and services; released a new study today that investigates the impact of mortgage payment reset by providing insight into who will be most affected when adjustable-rate loans convert from low, teaser interest rates to higher prevailing mortgage market rates.

Entitled "Mortgage Payment Reset: The Rumor and the Reality," by Christopher Cagan, Ph.D., director of research and analytics at First American Real Estate Solutions, the study utilizes the extensive database and analytical resources of First American RES and its subsidiary LoanPerformance to classify market segments as relatively safe or vulnerable under the pressure of mortgage payment resets. The most vulnerable will be those who do not have substantial equity in their homes, but hold adjustable rate mortgages (ARMs) with low initial rates, often with interest-only and negative- amortization features.

The study concludes, however, that while individual families and firms that are involved with the riskiest loans may suffer, on a national basis the impact of mortgage payment reset and subsequent default will not significantly impact the economy, as it will result in approximately $110 billion in losses, or less than 1 percent of total U.S. mortgage lending annually.

"Mortgage payment reset is likely to be the most important issue facing mortgage servicers and investors in the non-prime market during the next few years," said George Livermore, president of The First American Corporation's Property Information and Services Group. "This analysis provides helpful guidance for mortgage professionals by explaining key dynamics associated with mortgage payment reset and provides a method for evaluating risk."

The states with the lowest percentage of high-risk properties, where borrowers have more equity and are therefore less likely to experience the impact of reset, include New York, Hawaii, Massachusetts, Connecticut and New Jersey. The states with the highest percentage of risky properties, where fewer borrowers have significant equity and face greater likelihood of experiencing reset sensitivity include Tennessee, Colorado, Minnesota, Alabama and Arkansas.

Access to an electronic copy of the study is available at For more information, or to arrange an interview with Dr. Cagan, please call (714) 250-6759.

First American RES, a member of The First American Family of Companies, is the nation's largest provider of advanced property and ownership information, analytics and services. First American RES' database covers more than 2,500 counties representing 97 percent of the nation's real estate transactions. With more than 600,000 users nationwide, First American RES products are used by companies to improve customer acquisition and retention, detect and prevent fraud, improve mortgage transaction cycle time and cost efficiency, measure the value of residential and commercial properties, identify real estate trends and neighborhood characteristics, track market performance and increase market share. More information about First American RES can be found on the Internet at

The First American Corporation (NYSE: FAF), a FORTUNE 500(R) company that traces its history to 1889, is the nation's largest data provider. First American combines advanced analytics with its vast data resources to supply businesses and consumers with valuable information products to support the major economic events of people's lives, such as getting a job, renting an apartment, buying a car or house, securing a mortgage and opening or buying a business. The First American Family of Companies, many of which command leading market share positions in their respective industries, operate within six primary business segments, including: Title Insurance and Services, Specialty Insurance, Mortgage Information, Property Information, Credit Information and Screening Information. With revenues of $6.72 billion in 2004, First American has approximately 2,000 offices throughout the United States and abroad. More information about the company and an archive of its press releases can be found at

Contact: David Schulz The First American Corporation (714) 800-3298

Available Topic Expert(s): For information on the listed expert(s), click appropriate link. Dr. Christopher Cagan

SOURCE First American Real Estate Solutions Web Site:


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