MSN recently published an article on the internet about which consumers were most likely to experience foreclosure.  The article summarized a study by Christopher Cagan, the director of research and analytics for First American Corelogic.  Cagan noted that there were about 8.4 million adjustable rate mortgages (ARMs) originated in 2004, 2005, and 2006.  Of those mortgages, Cagan estimated that 1.1 million borrowers would lose their homes in the next 6 or 7 years as a result of interest rate increases.

Cagan assumed that property values would remain relatively stable during this time period, although he noted that a reduction in house values would cause even more foreclosures.  Each drop in house values by 1% was the equivalent of an additional 70,000 foreclosures.  Cagan also pointed out that the foreclosures would be felt during the next few years, with the largest number of foreclosures occurring in 2008.

Many ARMs were 2/28 or 3/27 loans.  2/28 means that the first 2 years of the loan were at a fixed rate, and the remaining 28 years were adjustable interest rates, often every 6 months.  3/27 means the first 3 years are fixed and the remaining years are adjustable interest.  Consumers took out these loans with the expectation that they would refinance within the 2 year time period, but events beyond their control prevented them from doing so. 

Although consumers may be facing foreclosures at an alarmingly increasing rate, there are options to help them.  Chapter 13 bankruptcy is a flexible tool which can enable a consumer to save his or her home from foreclosure.

Chapter 13 is one of the few clear and time tested means to stop foreclosures in their tracks and give consumers time to reorganize their finances

» Call our office for an appointment if you are facing a foreclosure and need time to refinance your home.