American Real Estate Solutions estimates 15% of people with ARMs will default. so that’s 1 million people nationwide. The reason is that they won’t be able to handle the up-to-50% increase in payment. Since 1/3 of people who took out a mortgage loan (purchase or refi) have 0 or no equity, when house prices fall, they cannot just walk away; they are already underwater. If I find a study about the anticipated foreclosure rate, I’ll start a thread on it. The loan and equity data is not real clear, so there’s a lot of estimating going on.

The question I have for the people who got ARMs is: With interest rates at historic lows, why did you get an adjustable rate mortgage, and interest-only, or a negative-amortization mortgage? Interest rates rise and fall, and have nowhere to go but up. Why wouldn’t you take advantage of historic low rates to lock in the 5% or 5.5% rate?

I’ve read that people do it to purchase a bigger home than they could otherwise afford, or to be able to buy a home at all. In SD, most buyers couldn’t make a purchase without the help of the 1% ARM.

Perhaps you can offer some insight as to why someone got an ARM, and how that person will be able to make the payments when their mortgage goes up by 50% (from 2%+prime to 5%+prime).

Also wondering why not all those people are busy refinancing right now.