In the hot housing market of recent years, many households took advantage of "affordability" mortgage loans that hold down payments for an initial period.
Now the initial periods are coming to an end on many of these loans, leaving borrowers to face resets of their interest rates that can cause monthly payments to shoot up between 10% and 50%.
More than $2 trillion of US mortgage debt, or about a quarter of all mortgage loans outstanding comes up for interest rate resets in 2006 and 2007, estimates Moody's Economy.com, a research firm in West Chester, PA. Some borrowers will have trouble meeting the higher payments and may be forced to sell their homes or could lose their houses to foreclosures. A recent study by First American Real Estate Solutions, a unit of title insurer First American Corporation, projects that about one in eight households with adjustable-rate mortgages that originated in 2004 and 2005 will default on those loans.
Source: The Wall Street Journal, March 11, 2006