ARMs will contribute to more loan defaults

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.

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