From the September issue: When the subprime mortgage crisis hit, adjustable-rate mortgages morphed from a widely popular loan option to a widely derided culprit in the residential real estate meltdown.

However, now these variable loans, known as ARMs, are making a major comeback in New York City. Since June, they have spiked to 20 percent of the business at Equity Now, a Manhattan-based direct mortgage lender, from zero throughout 2008 and the beginning of this year.

Brokers at a range of firms making new loans say all the action is in ARMs. For example, they have jumped to 60 percent of new loans processed at Apple Mortgage Corp. this year, compared to 40 percent a year earlier.

The reason for this renewed call to ARMs is simple: In many cases they offer lower interest rates than fixed-term loans do. [more]

More than 1.5 million properties throughout the U.S. received a default
or auction notice or were seized by banks in the six months through
June, with fixed-rate loans comprising 29 percent of all new
foreclosures, according to data service RealtyTrac. Rick Sharga,
executive vice president of RealtyTrac, said mortgage companies that
are offering the option of adjustable rate mortgages, or ARMs, will
only contribute to higher defaults because they allow borrowers to pay
less than the interest they owe each month, tacking on the difference
to their total debt and creating the potential for bigger bills in the
future. He predicted 3.2 million more Americans will be in foreclosure
by the end of the year. One in eight Americans is currently late on a
payment or already in foreclosure, according to the Mortgage Bankers
Association. [more]