Interesting article on ARMs resetting

[sweeps]

Foreclosures May Jump As ARMs Reset

[Diolla]

Re: Interesting article on ARMs resetting

In 2002, Christopher Jones, 32, refinanced into a hybrid ARM with plans to refinance again when the rate started to readjust. At the time, his downtown Atlanta house appraised for $108,000.

Now, his monthly payments have shot up, but Jones can't sell his house for more than $84,000 and he can't get an appraisal for more than $85,000.

The appraisal firm told Jones that the value of houses in his neighborhood have fallen victim to a cooling market. With no other options left, Jones has decided to pack it in and foreclose on the house.

"I'm just going to take the loss," he said. "That's all I can do."

I wonder if he realizes that the lender can sue him for the difference between the selling price and the loan? He may still have to make payments on a house he doesn't own.

[slimcustomer]

Re: Interesting article on ARMs resetting

A lot of people could buy some time refinancing into a new PenFed 5.5% 5/1 ARM with a 40 year amortization instead of resorting to more desperate measures.

[Elgin526]

Re: Interesting article on ARMs resetting

We're going to see a lot more of this in the next 18 months. All the 3 year ARM's that were taken out durring the past 2 years will be coming up for rest in the near future. A lot of people will lose their shirts. Even if their house hasn't depreciated (and many haven't, even in a cooling market) many people will be forced into much higher payments. Even if they refinance, odds are their payments will go up, just because overall interest rates are higher than they were when they took out the loan, plus they'll have to pay closing costs. Only now, they'll have a higher mortgage payment at a time when fuel prices are higher (both for cars and home heating) overall inflation is growing (due to fuel prices) and most credit card minimum payments are higher. Not a good combination. I think personal bankruptcies will be on the rise, a sharp rise, in the next two years. Some people will be okay, their income increased they way they though it would and can handle the higher costs, other's will have moved to a new home like they anticipated, or they get lucky in someother way. But I see dark times ahead for a lot of people.

I got lucky. I bought my condo in '01 using a 5 year ARM. But I had every intention of doing a refi within two years. Once I had a record of ontime payments, I'd be able to qualify for a lower interest rate on a traditional 30 year. I did the refi 1 year after purchase, my payments droped by $250 a month (beter interest rate) AND I had the security of a 30 year fixed. It turns out I did move in 2005, so I could have kept the original 5 year ARM and made out okay had I chosen not to refi, but hindsight is 20/20. People need to understand that in exchange for a lower interest rate, they take a larger risk. I could have easily gotten burned if I hadn't been able to refi when I did, or if the housing market in my area had cooled. Luckily for me that didn't happen.

[boefixepa]

Re: Interesting article on ARMs resetting

Why would you sign your life away without understanding the risks? Why do people choose to NOT educate themselves on what they are getting into? I can't understand how someone can not KNOW that they have an ARM! That's like saying I didn't know I needed to put gas in my car! I just don't get it....I don't.

If you understand the risk and it comes back to bite you...well you knew.

[jmjj215]

Re: Interesting article on ARMs resetting

In 2002, Christopher Jones, 32, refinanced into a hybrid ARM with plans to refinance again when the rate started to readjust. At the time, his downtown Atlanta house appraised for $108,000.

Now, his monthly payments have shot up, but Jones can't sell his house for more than $84,000 and he can't get an appraisal for more than $85,000.

The appraisal firm told Jones that the value of houses in his neighborhood have fallen victim to a cooling market. With no other options left, Jones has decided to pack it in and foreclose on the house.

"I'm just going to take the loss," he said. "That's all I can do."

I wonder if he realizes that the lender can sue him for the difference between the selling price and the loan? He may still have to make payments on a house he doesn't own.

I think he understands that, as he said he's "just going to take the loss". Of course, foreclosure is usually a lot worse than just selling at a discount. I'd be hard-pressed to foreclose and would rather sell it cheap.

[34saving]

Re: Interesting article on ARMs resetting

You sign your life away without knowing the risks because everybody you deal with in the process is a salesperson. Your agent, the selling agent, the mortgage broker . . . all of them will work hard to make sure that you feel comfortable -- often whether or not that requires lying.

[34saving]

Re: Interesting article on ARMs resetting

jmjj -- That's great if your bank will do a short sale. However, if you sell at a loss you still owe x to your bank. The outcome to your financial situation is basically the same (including the hammering of your credit unless you've got the cash.)

[cashqueen]

Re: Interesting article on ARMs resetting

Interesting. Is it ever ok to have an ARM? We bought our house with a 5 year arm at 4% thinking we would only be staying here about 3 years. Well, we are now on year 3. After 5 yrs our interest goes to 6%. We still may sell within the next 2 years but we are currently undecided. At most our plans are to stay here another 2-3 years. WWYD - refi now or wait it out for another 2 years?

[sweeps]

Re: Interesting article on ARMs resetting

I'm in the same situation. I'm on year 3 in a 5-year ARM at 4%. But I'm planning on moving in the next year or two, so I'm fine with it.

It's your call, but if there's a good chance that you'll be moving before (or shortly after) your ARM resets, I wouldn't refi. Just make sure you're building up your savings in the meantime though.

[sweeps]

Re: Interesting article on ARMs resetting

rexdart, maybe I'm misinterpreting what you're saying, but just to clarify... a 5/1 ARM means that for 5 years your rate is locked (at a level below the fixed rates at the time). Then after the 5 years the rate begins to float.

[jmjj215]

Re: Interesting article on ARMs resetting

jmjj -- That's great if your bank will do a short sale. However, if you sell at a loss you still owe x to your bank. The outcome to your financial situation is basically the same (including the hammering of your credit unless you've got the cash.)

Yeah, but can't you get a better deal selling at a discount vs. letting the bank auction it?

[34saving]

Re: Interesting article on ARMs resetting

Yes, but (at least around here) most people in foreclosure have no ability to pay back anything. So, whether they owe the bank $20,000 or $40,000 really doesn't matter. They're not going to pay it back anyway. In the meantime, since foreclosure takes 6 months or more at least they can stay in their homes for a lot longer than if they sold it at a loss. It will be interesting to see if banks start doing more short sales as the foreclosure rates increase . . .

[debtfreeme]

Re: Interesting article on ARMs resetting

with the slowing of the real estte market here in sacramento and the inceasing threat of foreclosures, i am hopinh that i will be able to find something around here cheaper through foreclosure. It is hard to take someones homes, but why wait until the end to do anything as so many people have done? Why lock in an ARM if you have no intention of changing anything.

As for the ARM that goes to 6 in a couple of years, is that set in stone never to be moved again? It is a pretty low rate and who knows where rates will go with everything on the rise. We are starting to see the shift upward in martgage rates so 6 sounds good but if you refi you might be able to get 5.5 or 5.25 which could equal thousands saved.

[flash]

Re: Interesting article on ARMs resetting

ARMs are great if rates are high and expected to fall...we did this maybe 10 years ago at a very low rate, and at the end of the term, the rates had fallen dramatically. We could either lock in the low rate, or pay it off, which we did. ARMs make sense if you are PLANNING to sell, refinance, or change before the end of the term.