Affluent home owners also took out adjustable mortgages

For those who think that adjustable rate mortgages were taken out mostly by entry-level buyers, an article in the New York Times profiles more affluent borrowers -- those making more than $100,000 per year -- who have also been hit with re-setting rates that they find unaffordable:

They took out adjustable-rate mortgages at the peak of the housing bubble to buy homes they would otherwise not be able to afford. Or they refinanced existing mortgages to take cash out. And now, two or three years later, the day of reckoning is here.

These are not lower- and middle-income borrowers, but more affluent consumers with annual incomes of $100,000 or more who are increasingly being ensnared in the home mortgage crisis.

People in all income categories “are facing the shock of new payments that can be twice as much as previous ones,” said Susan M. Wachter, professor of business and a real estate specialist at the Wharton School of the University of Pennsylvania...

According to Loan Performance, a unit of First American CoreLogic, a real estate information company based in Santa Ana, Calif., about 870,000 borrowers took jumbo ARMs — mortgages of $417,000 or more — from 2005 to 2007.

In the fourth quarter of 2007, 8.10 percent were two or more payments late, it found, while 2.62 percent were in the foreclosure process and 1.35 percent had been foreclosed. All the numbers were up from the third quarter...

Today’s ARMs were “designed to fail, so you have to refinance,” Ms. Wachter said. “It shouldn’t be surprising that values go up and down in this kind of situation. And when you most need to refinance you can’t — the crux of the crunch.”

Jeffrey Conner, a San Francisco real estate lawyer, says he regularly hears from his clients “that lenders assured them they could always refinance.”

Refinancing requires some equity. Even if homeowners put a substantial amount of money down, many have no equity because their homes are worth less than they owe. In real estate parlance, their mortgages are under water.

Richard Geller, founder of Mortgage Relief Formula, a for-profit venture based in Fairfax, Va., that counsels troubled ARM borrowers, said he received calls from affluent consumers in almost every major metropolitan area...

Homeowners with at least 3 percent equity may qualify for refinancing through the Federal Housing Administration. On March 6, it began making loans up to $729,750, a new higher limit that expires Dec. 31 unless Congress extends it. Limits are 125 percent of median home prices, by county. Consumers can find their local limits at

https://entp.hud.gov/idapp/html/hicostlook.cfm.

To find a qualified lender or broker, consumers may call (800) CALL-FHA, look in the Yellow Pages or visit www.fha.gov for the four regional centers.

Loan modifications entail freezing or reducing interest rates and may also include balance reductions...

Negotiating a loan modification means understanding that in most cases “the lenders really don’t want to force people into foreclosure because that virtually guarantees large losses in the market,” said Dean Baker, an economist with the Center for Economic and Policy Research in Washington...

Borrowers should determine if they live in a state with nonrecourse laws. In general, lenders in those states cannot pursue borrowers for money owed. But these laws are complex and change often, so consulting with a lawyer may be necessary, Mr. Geller said. He has compiled a list of nonrecourse states at www.mortgagerelief formula.com/recourse.