Over the last five years, the housing market has seen a massive explosion in property values and home prices, but between August 2005 and February of this year, the housing market saw a correction in some areas. A correction that caused prices and values to level off a bit.
This was not bad news for everyone, especially for those buying, however, it was bad news for some folks who bought with an adjustable rate mortgage (ARM) in recent years. Why does that mean more foreclosures? AP reports courtesy of the St. Petersburg Times:
This year, more than $300-billion worth of hybrid ARMs will readjust for the first time. That number will jump to about $1-trillion in 2007, according to the MBA. Monthly payments will leap, too, many beyond what homeowners can afford.
For example, Britten's monthly payment jumped from $1,079 to $1,340 at the start of this year. It rose again June 1 by $104 more and is scheduled to increase again in December. Britten, who is also paying off student loans, went to a credit counseling service to help her avoid foreclosure.
“I've gotten rid of all my credit cards and I'm not supposed to refinance for another year,” she said. “All I can do is tread water right now.”
“ARMs are a ticking time bomb,” said Brad Geisen, president and chief executive of property tracker Foreclosure.com .
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 prime and subprime ARM loans increased year-over-year in the first quarter, according to the MBA.
The foreclosure boom that is predicted will be a boon for real estate investors, who will profit from this trend and the number of short-sales taking place to help homeowners prevent foreclosure.
If you're buying with an ARM, think again, before you end up being told by your bank that you owe them $300 more a month or the house is going to be theirs. ARMs are the worst thing that's ever happened to destroy the American Dream of homeownership.
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