Here’s a part of the story I was referring to in my post, about the lady in Georgia.

This lady’s mortgage went up 40% since the beginning of the year, and will go up again in December. The story doesn’t tell us the value of her mortgage, only that she refinanced into an ARM in 2003.

The Texas homeowner purchased her first home in 2003 with a $141,000 mortgage, and saw her payments jump 36% earlier this year.

carlislematthew, the guy is clearly nuts. I knew about the national ARM problem, and he, as a professional, should know more than I.

I hope that everyone reading this post is clear about the nationwide fallout of the nationwide lax lending standards. The bubble areas are regional, but the lax lending was nationwide, and thus will cause housing prices to drop nationwide. Even $100K homes can be foreclosed on if the owner has an ARM. ARMs are toxic. Anyway, here are some quotes from the reuters story.

“As more hybrid adjustable rate mortgages adjust upward and housing prices dip, many Americans can’t refinance out of this squeeze. They are finding themselves trapped in too-high monthly payments, and some face foreclosures.

In 2003, Anita Britten refinanced her two-story brick cottage in Lithonia, Ga. using a hybrid adjustable rate mortgage, or ARM. Her lender reassured her that she could refinance out of the riskier loan into a traditional one when her interest rate started to reset.

Three years later, Britten can’t get a new mortgage and her monthly payment has jumped by a third in six months.

Britten’s monthly payment jumped from $1,079 to $1,340 at the beginning of this year. It rose again on June 1 by another $104 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.”

When Dora Angel of DeSoto, Texas bought her first home in 2003, she paid $141,000 for the brand new three-bedroom, two-bath home. At the time, her mortgage payment was $1,400 a month.

DeSoto originally thought that she had a fixed-rate loan. But about five months ago, she noticed that her monthly payment kicked up to $1,900. She only made the monthly payments by sacrificing payments on her credit cards, which pulled down her credit rating.

Now, DeSoto can’t continue paying $1,900 each month, but, because of her credit ranking, she doesn’t qualify for a fixed-rate mortgage.

END QUOTE

EJ, you’re right. I’m not a loan officer, so I was giving vague figures. The principal stays constant, so the effect is actually less than 50% on an ARM, but more than 50% on an IO loan that starts into its principal-repayment period. Many ARMs start out with low teaser rates, at 1%, and then go to 5%. So while my numbers were inaccurate, the general gist is that your payments can go up a lot, up to 70% actually, depending on the loan you have.

Considering that people tend to get the highest payment for which they qualify, a move from $1500 to $1900 is huge. Although many of us would scoff at a $1900 payment, imagine your income after taxes is $3K/month, or $2800/month, and now your payment went to $1900. That is enough to cause a foreclosure.

Sorry that I didn’t run the numbers. Accuracy is important to me, and I should have verified before I posted.

I calculated that 5 million number, because no one has ever said how many people were affected. It could be much less, or much more.

My number is based on $200K average loan amount. In CA, the loan amount would be higher, probably $500K (median price), so perhaps nationwide we would have only 2 or 3 million people affected. Does anyone want to improve my estimate?