Lay Down Your ARMs

From Holden:

That Bush Boom is a bitch, ain’t it?

As more hybrid adjustable rate mortgages adjust upward and housing prices dip, many Americans can’t refinance out of this squeeze. They are finding themselves trapped in too-high monthly payments, and some face foreclosures.

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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.

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“ARMs are a ticking time bomb,” said Brad Geisen, president and chief executive of property tracker Foreclosure.com. “Through 2006 and 2007, I’m pretty sure we’ll see a high volume of foreclosures.”

Last year, foreclosures hit a historical low nationwide at about 50,000. But that number has more than doubled since then, according to Foreclosure.com.

And delinquency rates appear to be rising, as well. While delinquency rates fell for most types of loans from the fourth quarter of 2005 because of a stronger economy, delinquencies for both prime and subprime ARM loans increased year-over-year in the first quarter, according to the MBA.

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[A]s the housing cools in these once hot markets at the same time that ARMs reset, many homeowners may be unable to dump their properties before going into foreclosure, [Dr. James Gaines, a research economist at The Real Estate Center at Texas A&M University] predicts.

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“Sometimes buyers are very optimistic of how much mortgage they can handle, especially in a strong housing market with aggressive marketing of riskier mortgages,” said Suzanne Boas, president of Consumer Credit Counseling Services of Greater Atlanta.

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Unfortunately, during a runaway market, many buyers, sellers and mortgage brokers were more excited about making deals than making smart deals, and the fallout has just begun.

“We are on the front of this ARM problem. It will roll out over the next several years,” Boas said. “Owning a home is the American dream, but losing one is the ultimate nightmare.”