by
Carl Hampton
09/06/2006
Foreclosures were down in the second quarter
of this year, but are those mortgage
chickens about to come home to roost. During
the recent housing boom, millions of
Americans took out adjustable-rate mortgages
(ARM's). The Mortgage Bankers Association
said in a recent report that 36% of all Home
Loans financed in 2005 were ARM's this is
the highest ever.
Somewhere between $400 billion and $500
billion in ARM’s are due to be reset by
the end of 2006. This is going to be a major
concern to the housing market. Many
homeowners will see their monthly repayments
go up by as much as 20%. 2007 is even worst
with $1.5 trillion due to be reset.
For millions of American homeowners this is
very scary news indeed. Many purchased homes
far beyond there means enticed by those low
interest rate mortgages and raising prices.
Many thought they could use the house as a
springboard to the American Dream and
greater wealth by selling before the ARM's
ran out and avoid the rate increase. What
has happened in the housing market over the
last few months has just about put a stop to
that.
Many of these homeowners now find themselves
in a home they can no longer afford and
cannot sell. The problems do not end there.
With higher gas prices and raising credit
card rates, many may well be forced into
foreclosure. A lot of industry observes are
now very concerned that the default rate
could well reach very dangerous economic
levels. Government sponsored enterprises (GSEs),
such as Fannie Mae (FNM) and Freddie Mac (FRE),
as well as some of the major lenders like
Countrywide Financial (CFC) and Wells Fargo
(WFC), are all looking at their foreclosure
prevention strategies.
Large numbers of Americans will almost
certainly find themselves going into
foreclosure, for many others this may
represent a great opportunity that's been
denied them in recent years as homes come
onto the market at prices they can afford.
It's very important to remember that
foreclosure laws are not federal, so laws on
foreclosure can be very different in each
state. New York homeowners have 455 days
between the time they're delinquent on their
loans and the time when a lender can
foreclose on them. In Texas, the
pre-foreclosure time period is only 27 days,
by far the shortest in the U.S.
