Beware of Sharks

We saw this coming more than a year ago, and it’s finally here. In Some homeowners struggle to keep up with adjustable rates, USA TODAY reports:

America’s five-year real estate boom was fueled partly by a tempting array of cut-rate mortgages that helped millions of Americans qualify for home or refinance loans. To afford soaring home prices, many turned to adjustable-rate and other, riskier loans with low initial payments. The homeownership rate hit a record 70%.

Now, the real estate market is cooling, interest rates are rising and tens of thousands more Americans are starting to have trouble paying their mortgages. Nearly 25% of mortgages — 10 million — carry adjustable interest rates. And most of them went to people with subpar credit ratings who accepted higher interest rates, according to the Mortgage Bankers Association.

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Already, in West Virginia, Alabama, Michigan, Missouri and Tennessee, about one in five homeowners with a high-interest (subprime) ARM was at least 30 days late at the end of last year, according to the Mortgage Bankers Association. After 90 days, the foreclosure clock starts ticking.

Most of those foreclosures are related to job losses in auto and garment factories; higher mortgage payments were often the last straw.

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Of the 7.7 million households who took out ARMs over the past two years to buy or refinance, up to 1 million could lose their homes through foreclosure over the next five years because they won’t be able to afford their mortgage payments, and their homes will be worth less than they owe, according to Cagan’s research.

When families get in trouble the sharks start circling, so be very careful. Don’t do anything to make your situation even worse.

When you’re faced with foreclosure, it’s tempting to take the easy way out and sell your home to a “professional” real estate investor. That can be a recipe for disaster, though. Be sure to read “We Buy Houses” Scams — How to Spot Them and How to Avoid Them before you do anything.

Selling your house quickly can make a lot of sense, but it can also be the beginning of a real nightmare.