The resetting of Adjustable Rate Mortgages (ARMs) are starting to affect the economy as many who use these risky loans are unable to refinance into another mortgage and are facing the prospect of foreclosure. As housing prices remain stagnant or dip, more people will be exposed to rising mortgage payments and face financial hardship.

As more ARMs adjust upward and housing prices begin to dip, many Americans like Britten can’t refinance and are finding themselves trapped in too-high monthly payments. For those who can’t make their payments, foreclosure is the only way out.
Foreclosure figures just released by the Mortgage Bankers Association show that foreclosure activity fell in the first quarter of 2006 over the first quarter of 2005 for all loan categories except subprime loans. The MBA didn’t specify how many of subprime loans were adjustable rate mortgages.
In the last several years, millions of Americans took equity out of their houses and refinanced when interest rates were at historical lows and housing prices were at record highs.
Many of them chose to refinance into hybrid ARMs that lenders were aggressively pushing. ARMs, which featured a low introductory interest rate that resets upward after a set period of time, were easier to qualify for than traditional fixed-rate loans.
ARMs are now starting to fall by the wayside as the difference in interest rates narrows. The average rate on a 30-year fixed rate loan in May was 6.60 percent compared to 5.63 percent on a one-year ARM, according to Freddie Mac. In 2003, rates on a 30-year fixed were at 6.54 percent, while ARMs carried a 3.76 percent rate.
This year, more than $300 billion worth of hybrid ARMs will readjust for the first time. That number will jump to approximately $1 trillion in 2007, according to the MBA. Monthly payments will leap too, many beyond what homeowners can afford. via Ocean County Observer

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