The tide is drawing out, and the tsunami is coming

Some homeowners struggle to keep up with adjustable rates
USA Today

America's five-year real estate boom was fueled partly by a tempting array of cut-rate mortgages that helped millions of Americans qualify for home or refinance loans. To afford soaring home prices, many turned to adjustable-rate and other, riskier loans with low initial payments. The homeownership rate hit a record 70%.

Now, the real estate market is cooling, interest rates are rising and tens of thousands more Americans are starting to have trouble paying their mortgages. Nearly 25% of mortgages — 10 million — carry adjustable interest rates. And most of them went to people with subpar credit ratings who accepted higher interest rates, according to the Mortgage Bankers Association.

"Within the last year, I would say 60% to 70% of calls to our hotlines are issues related to ARM (adjustable-rate mortgage) loans," says Chris Krehmeyer, executive director of Beyond Housing, a non-profit group that offers homeownership support services in St. Louis. "That's significantly higher than in years past, because the ARMs are coming home to roost."

The story then goes on to downplay the problem by explaining that the expected $100 billion loss as not as bad as the S&L crisis of the 1980's.

When people start defaulting on houses in "hot", overpriced markets, housing prices may collapse in those areas. Cheap houses will pour onto the market and depress construction of new housing.

ARMs should be outlawed.