Below is an interesting piece that ran in the Sunday paper last weekend with
some statistics regarding ARMS and resets to higher rates.
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During the housing boom of the past five years, mortgage brokers flooded
mailboxes and called homes offering once-exotic products such as adjustable-rate
mortgages, interest-only loans, no-cost loans and loans for more than 100
percent of value. Such loans -- often at extraordinarily low rates -- allowed
people to buy more house than they could have afforded under traditional lending
terms.
Industry experts say some people took out those loans without fully
understanding the terms or with inflated expectations of their own finances.
While adjustable-rate mortgages allow people to borrow more money than
traditional mortgages, they are riskier. The most popular ones have fixed rates
for three or five years, though some are fixed only for one year. At the end of
the fixed period, the loan resets at prevailing interest rates.
As interest rates rise, somebody who took out a $300,000 loan a year or two
ago and might have been paying $1,300 or $1,400 a month, for example, could now
pay from $1,800 to $2,200.
Adjustable-rate mortgages now account for a quarter of the more than
$8.5 trillion in outstanding loans, according to the Mortgage Bankers
Association of America.
"We're talking about potentially 2 to 3 trillion dollars of mortgages
being these adjustable rates that are going to come due to reset in the next 18
to 24 months," said Rick Sharga, vice president of RealtyTrac Inc., a
database on foreclosure properties.
"And we really don't know what's going to happen with them, because we've
never had this particular set of circumstances."
Paycheck to paycheck
The first signs of trouble are showing. In Hennepin County, sheriff's
foreclosure sales totaled 1,042 in the first five months of 2006 -- up 62
percent from the same period a year ago.
Nationwide, 323,102 properties entered some stage of foreclosure in the first
quarter of 2006, according to RealtyTrac. That's a 72 percent year-over-year
increase from the first quarter of 2005.
The first quarter of this year brought at least one foreclosure for every 358
U.S. households, a rate higher than in any quarter of 2005, RealtyTrac said.
"There's a much greater risk of people facing default," said Lowell Yost,
executive director of the Minnesota Home Ownership Center, which educates
consumers to prevent foreclosures. "Just the littlest stumbling or tripping can
put people over the edge."
Notice of foreclosure, however, doesn't mean being out on the street
immediately. Foreclosure can take up to a year, during which the owner can get
back into good standing and avoid losing the home