Many options for ARMs borrowers

By Melissa Wirkus

Adjustable-rate mortgages or ARMs became very popular during the housing boom, because they allowed people to get into houses that they normally couldn’t with a more traditional loan.

The thing with ARMs though is that they start out with low interest rates and monthly payments, and then the rates “adjust” according to current market conditions, leaving people with much higher payments then they are used to paying.

ARMs are a good option for many people, but for borrowers who didn’t know what they were getting themselves into, the results can be disastrous.

With this being said, many of these loans are set to adjust this year, so a plethora of borrowers have to reassess their financial situation and analyze their options for dealing with their ARM.

An October 7, 2006 article by Danielle Reed of The Wall Street Journal, “ARMs control for borrowers,” looks into the many options made available for homeowners with ARMs.

“A large number of mortgage borrowers will see their adjustable-rate loans shift from fixed rates to floating rates in the next year. But with long-term mortgage rates significantly lower now than a few months ago, opportunities for refinancing those soon-to-be floating-rate loans are plentiful.”

“‘As long as interest rates stay low...many borrowers will be able to adjust’ to their new situation by refinancing, says Nela Richardson, senior economist with mortgage giant Freddie Mac in Washington. The rate on a 30-year fixed-rate mortgage averaged 6.3% in the week ended Oct. 5, down from a 2006 high of 6.8% in July and the lowest level since March, according to Freddie Mac.”

These facts reflect that refinancing has already seen an increase, due to lower rates, and people becoming increasingly concerned about their current situation.

Refinancing activity has increased by 17.5 percent, which is the highest since October 2005, according to the Mortgage Bankers Association. This is good since it shows that people are trying to deal with their potentially dire situation before it gets too bad.

“‘We are definitely seeing an uptick in volume’ of loan applications because of increased refinancing, says Greg Gwizdz, national sales manager at Wells Fargo Home Mortgage, a unit of Wells Fargo & Co.”

“Most customers with loans in the $100,000-to-$200,000 range are choosing to refinance into fixed-rate loans, says Mr. Gwizdz, while those with larger mortgages -- say, more than $400,000 -- are sometimes still going with ARMs. Across all loan sizes, he says, the 30-year fixed-rate mortgage with a 10-year interest-only period is growing more popular.”

Some lenders are even taking this a step further and are not waiting for their customers to contact them, but instead notifying their borrowers of refinancing options through emails and direct mailings. This could be one step in helping to stop a potential wave of foreclosures in the near future, because people didn’t understand their loans.

“Many lenders and brokers aren't waiting for borrowers to call them. Wells Fargo is going into its customer database and selectively mailing out "attractive" refinance offers, says Mr. Gwizdz. Wells Fargo has also set up a "mortgage rate monitor" on its Web site that sends free adjustable-rate-mortgage alerts by email to people who sign up.”

“Chase Home Mortgage, a unit of J.P. Morgan Chase & Co., is using direct mail to target consumers who have option ARMs from other lenders, encouraging them to refinance, says Tim Foley, senior vice president of retail sales. Chase is also encouraging its loan officers to talk to customers about refinancing options.”

So if you find yourself in an ARM and you are worried about your financial future, there are many options available to you. Banks do not like or want to foreclose on properties, so they will most likely be able to work something out for you and your family.

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