by Daniel Costello

JD from Witchita, Kansas, wrote in to ask how many people in the U.S. have mortgages and how many of them are adjustable rate mortgages, the kind of loans where the interest rate on the note is periodically adjusted based on a variety of indices.

The other day you had an engineer who asked about his abillity to sell his house after he graduated from school. An economist responded to his question. What caught my attention was the statement the economist asked the caller. "Do you have and Adjustble Rate Mortage?" The economist answered his own question by saying "Of course you do as do I and most everyone else." My question to you is just how many people have ARM's?

This floors me. I don't understand how so many people could be caught up in this unless they didn't know what they were getting into.

 

In 2007 I had average to poor credit when I bought my first home. I scrimped and saved to put down 20% on a $130,000 home. I make $45,000 a year and I was able to negotiate a bi-weekly payment plan on my house to reduce a 30 year note to 23 year note. I had many banks offer me a ARM but I knew it would eventually balloon out after a few years. I refused to buy into the ARM scam. I had many bank officers and loan officer coach me in to what I needed to do to get into the house I wanted. This paid off in April of 2007.

I also know LOCATION, LOCATION, LOACATION. makes a difference but never the less the economy of each different location should compensate for that. EXAMPLE: If you live in California then your making more money then as if you where in the mid-west.

My point is this: I get the feeling this economic situation has been pumped up only to be dumped on the entire US as well as the world.

I feel its nothing more then a rip off - I'm not spending any money because I'm not making a lot of money.

JD
Wichita KS

Thanks for writing in JD. Even is this market, we're jealous you got your house for $130K.

Before I called to find out the answer to your question, I asked some folks around the office for their guesses. Let's just say we were way off — and, without a doubt, I was the worst.

I assumed the number of people with mortgages would be much higher and that the number with adjustable rate mortgages would be lower. I guess I can't help it, I'm an optimist.

According to American CoreLogic, a real estate research firm that reports having data on 95% of the U.S. market, there are currently 48.5 million active mortgages in the country. Of them, 9.02 million, or 19%, have an adjustable interest rate.

First American CoreLogic also says $250 billion in loans will reset in 2009 and $700 billion in 2010 and after. If left on their own financially, many of these borrowers may be forced into foreclosure.

That's a significant reason King Henry and the Treasury are reconsidering their recent aversion to directly helping people at risk of losing their homes. Maybe that and they realize President-elect Obama also supports the idea, which means they have little choice at this point.