Foreclosures Jump as Adjustable Rate Mortgages Reset

California Foreclosure & Real Estate News

There were some pretty daunting figures on the radio this morning regarding the predicted foreclosure rates.

The main issue was the effects of subprime lending in what you could call some rather hasty lending practices. With the housing market bursting with opportunity it seems lenders were rushing to offer home loans to whomever qualified, which apparently was just about anybody.

According to the report on N.P.R. one in five subprime loan borrowers will end up in foreclosure in the coming year. The Center for Responsible Lending estimates that those numbers account for roughly 2.2 million homeowners falling victim to risky subprime lending across the nation.

It’s not just subprime borrowers either; the recipients of adjustable rate mortgage loans are also finding themselves in quite the financial bind. In many cases borrowers received high-risk adjustable rate loans packaged in an attractive low- start rate. Many were approved without consideration of whether or not they could afford these loans after they would inevitably “reset” for the worst.

The damage has been done and the ramifications are still to come. Forecasters estimate that over $1 trillion in ARMs will “reset” with increased rates in 2007.

The reason behind many of these homeowners with adjustable rate mortgages heading into foreclosure is due in part to the difficulty of refinancing into a traditional loan. Unfortunately, because of higher interest rates on a 30-year fixed-rate mortgage the homeowner’s payments would still be higher than their initial low monthly payments.

Additionally, many homeowners will not qualify for such refinancing due to the current housing market slump. In some markets home values are now less than what the homeowner originally paid during the real estate rush. Those who received 100% financing will especially be feeling the pressure this coming year.

It’s a grim picture for many homeowners throughout the U.S. On the upside, preventative measures are being taken throughout the nation including legislation that will enforce certain guidelines governing these risky business lenders. Also, foreclosures can prove to be an affordable housing alternative for those homebuyers left in the dust from the real estate boom. Let’s just hope they too won’t fall victim to the imprudent lending practices plaguing the country today.

By: Luanne Bryant

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