ARMS Causing Foreclosures, applications decrease

Homebuyers are rejecting adjustable rate mortgages (ARMs) in record amounts as interest rates rose to heights not seen in more than 6 years, studies show. The Mortgage Bankers Association state that costs to borrow on a 30 year mortgage with a fixed-rate dropped in the past few weeks to the lowest level, however rates on 1 year mortgages with adjustable rates rose 6.5% last week, the biggest jump in record and the highest lvel it has been since January of 2001. According to investment strategists, more borrowers are becoming aware of their mortgage options, and beginning to look around for better offers than the ARMs that are being offered to them. The decline in the shares of ARM’s reinforce their opinion, and show that consumers are being more cautious when it comes to obtaining a loan. For the 2^nd straight week, mortgage applications fell in the nation, showing a fall in the demand for new and existing home purchases, as well as loans for refinancing. The growing difference in interest rates between ARMs and fixed rate mortgages are contributing to the decline in consumers wanting ARMs as fixed rate mortgage interest rates are significantly lower.

Because of the number of defaults and foreclosures in the subprime mortgage market, lenders have started to tighten their lending standards. As subprime borrowers often have poor credit histories, it has become difficult for these potential homebuyers to get loans. This has in part caused the decline in mortgage applications.

ARMS are being blamed for causing many of the foreclosures across the nation. Borrowers are often barely able to afford the interest rate when they first purchase the house, and when the rate rises, they struggle or fail to make the payments. Because of the number of foreclosures, consumers and lawmakers alike are examining the lending industry and it practices, considering changes in regulations for both lenders and borrowers.