From ABC News:
Heidi never imagined that she could lose her home outside Dallas. But rising interest rates and skyrocketing monthly mortgage payments have left her staring at foreclosure. She’s just one of many Americans who might be forced to move as the housing market cools.
“We couldn’t keep up with the payments,” she explained one dreary, wet Sunday morning in late winter. “The payments went from $1,700 a month almost to $3,000 a month, so this being my first home, my dream home, I had to lose it.”
Heidi’s situation is not unique. She is one of millions of Americans who took out ARMs to purchase a home during the recent housing boom.
As those initially low monthly interest rates started to get reset, homeowners could see their monthly payments rise to levels beyond their ability to pay. Interest rates for nearly a quarter of all mortgage debt, or $2 trillion, will be reset in 2006 and 2007, according to Moody’s Economy.com.
As home prices soared at double digit rates during the recent, red-hot housing market, many stretched themselves financially to purchase a home. The use of lower-interest rate ARMs, interest-only mortgages or option-ARMs that allowed home buyers to choose how to pay each month soared during the same period. According to the Mortgage Bankers Association of America, ARMs now represent 25 percent of the more than $8.5 trillion in outstanding loans.
“I think it’s a bomb waiting to go off,” said William Apgar, reflecting on the future of interest rate increases for those with ARMs. Apgar has studied foreclosures in Atlanta and Chicago as a lecturer at Harvard’s Kennedy School.
From the Christian Science Monitor:
If the nation’s real estate boom collapses, its first victims may well be low-income minorities and immigrants in a big US city like Boston.
The trend is especially worrisome, the analysis shows, because these vulnerable homeowners tend to be minorities and immigrants who, experts say, often hold the riskiest mortgage loans.
Homeowners “call us and are heartbroken,” says Robert Pulster, executive director of the Ecumenical Social Action Committee, which works with Boston residents on the brink of losing their homes. “They thought it was their dream.”
More trouble lies ahead, some experts warn.
“I would suspect that as home prices soften, you are probably going to see a ramp-up in defaults, delinquencies, and foreclosures,” says Nicolas Retsinas of the Joint Center for Housing Studies at Harvard University. “It is not that they were not stretched before, but if you couldn’t make the mortgage payments, you would sell. If the market is softer, it is not as easy to do this.”
“A lot of them just do not listen. They want a house,” he says. “I try to advise them: You can get a house, but you might not be able to stay in it.”