Payment Shock Hampers Michigan Mortgage Holders With ARMs

For Amy and Randy Greenwood, an adjustable-rate mortgage was a way to consolidate debt even with less-than-perfect credit.

Here’s the deal: Get lower “teaser” home loan rates for several years, but risk higher payments after that time is up and your rate readjusts.

Time is up for the Greenwoods and millions like them, the Detroit News reports.

“It’s going to make it harder. It will take away some extra money that we would like to save,” said Amy Greenwood, whose mortgage bill jumped from $1,100 to $1,359 after the rate on the loan jumped 3 1/2 percent.

Payment hikes could not come at a worse time for many Michigan mortgage holders who face falling home values, job loss and a stale real estate market.

“We have the combination of ARMs and the combination of a depressed real estate market. I’m seeing people all the time now that I just can’t help. It’s just the kiss of death,” said Mark Chessman, a bankruptcy attorney.

Several years ago, when mortgage rates scraped bottom, thousands of Metro Detroiters opted for adjustable-rate loans to buy a home at the initial low rates they offer. Many also applied for debt consolidation mortgage loans to pay off credit card debt, or to take out home equity credit lines for improvement projects.

Now, interest rates on an estimated $500-800 billion of those loans will readjust in 2007, according to the Mortgage Bankers Association. Freddie Mac estimates that $494 billion will reset this year.

The increases in housing payments that come with adjustable-rate mortgages are at least partly to blame for a 17 percent, third-quarter jump in foreclosures reported this month. Year over year, foreclosures are up 43 percent.

“With the volume of these loans — more than $1 trillion of them due to adjust over the next 15 months — this is a trend that definitely bears watching,” said James J. Saccacio, CEO of RealtyTrac.

Median home prices in Metro Detroit dropped 8 percent — the biggest decline since 1989 — in the second quarter of this year, compared to the same period last year, according to the National Association of Realtors.

Those falling home prices, coupled with mortgages with no down payment or a maxed-out home equity line of credit, has left stranded many homeowners whose home values now fall below what they owe.

“Home prices are not rising the same as they are across the nation. We haven’t had that home explosion like they have in Nevada or Arizona,” said Carlo Dall’Olmo, a broker with 1st Metropolitan Mortgage.

Many people with adjustable-rate mortgages are now scrambling to get into a fixed rate or sell their home, which can also be difficult, said Akua Ofori-Mensa, who works in the GreenPath Debt Solutions Westland office.

“Because the market has depreciated so much, there’s not equity in people’s home and you need equity to refinance,” Mensa said. “I’ve seen a lot lately too that people want to sell their house, (but) they can’t sell it for what the mortgage value is.”

At first, an ARM on a home is a smart move, or at least it appears so. But many do not capitalize on low rates and lock into fixed-rate mortgages when the getting is good. And that could spell disaster for millions.

If you cannot afford the monthly payment on a 30-year fixed-rate mortgage, that’s a red flag that you cannot afford that home. Now that short-term mortgage rates have really increased, millions of homeowners who believed they were getting terrific deals are now staring at some steep payment increases.