"Shock" over Mortgages - 1 of the many sides to this story

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Barron's warns that "sticker shock" is hitting homeowners with adjustable mortgages as rates have risen.

The rate increases may have grave effects for those with mortgages and the overall U.S. economy.

Ominously, the respected financial weekly says that "Over the next two years, monthly payments on an estimated $600 billion of mortgages, to borrowers with checkered or no credit histories - the "sub-prime" market, may zoom as much as 50 percent higher as the two-year teaser rates on hybrid adjustable-rate loans expire."

Barron's calls this a "reset problem" that poses a significant risk to the country's economic well-being.
Mortgages taken out by sub-prime borrowers include Hybrid ARMs, with low teaser rates in the early years, and IO Mortgages, which initially charge interest only.

Nearly all the $1 trillion in outstanding sub-prime loans were taken out in the past two years, most with an introductory rate period of only a few years, so the "teaser rates" on many of these loans are due to expire shortly.

Worse still is that due to the Fed's hikes in short-term interest rates, adjustable mortgages will see a boost in interest rates when they reset, according to Barron's.

In the recent past, borrowers who couldn't handle the increase in their monthly payment could sell their home to pay off the mortgage and even reap a profit, thanks to soaring housing prices.

But home prices now appear to be leveling off and in some places even declining. And inventories of homes are dramatically rising - meaning it will be difficult for borrowers to sell off their properties like they could in recent years. And many borrowers have only a narrow gap between what they owe on their mortgage and the price their house could fetch if sold - or no gap at all.

Doug Duncan, chief economist of the Mortgage Bankers Association in Washington, D.C., is optimistic:

"I just don't see any coming collapse in the sub-prime market as long as the U.S. economy and job growth stays strong and interest-rate increases remain subdued."

But according to one doomsday scenario outlined by Barron's, we could see "a coming spiral in delinquencies, foreclosures and credit losses from tapped-out, sub-prime borrowers facing monthly payments they can't meet."

Sir John Templeton first warned housing prices could crash 50%. Find out what he said and learn how to protect yourself and even profit from the coming storm @ NewsMax.com's Financial Intelligence Report.