Option ARMs are the Bomb
Experts at HousingWire.com say there is a wave of foreclosures on the way that could dwarf the current mess. Record numbers of pay option ARMs are due for reset, and according to the Mortgage Bankers Association 80% of borrowers make the minimum payment every month.
This may create a perfect storm of upside down homes and payments resetting to several times the original values. What can a homeowner who can’t refinance or sell do? Get ready to negotiate with your lender. Experts say that borrowers have the greatest chance for successfully keeping their homes and saving their credit if they get a loan modification rather than a repayment plan. So, prepare to show your lender how much you can reasonably be expected to pay each month under new loan terms. Document your income, assets, and debts, just as though you were applying for a new mortgage (which in effect your are), and prepare to wallow in a lot of red tape. The one thing you have on your side is the fact that you are upside down–the less equity involved, the more incentive the lender has to help you out and refrain from foreclosing.
While many lenders won’t even talk to borrowers about workouts unless they are seriously delinquent, option ARMs present a special case in that you will be able to easily prove that once the loan resets repayment is impossible–you shouldn’t have to miss months of payments to prove that, the numbers will speak for themselves. So if you have some advance notice that you will be in hot water in the future, start working to solve the problem now. Check with HUD for a list of low cost housing counselors and be as proactive as you can.
