NEW YORK -- In 2003, Anita Britten refinanced her two-story brick cottage in Lithonia, Ga. using a hybrid adjustable rate mortgage, or ARM. Her lender reassured her that she could refinance out of the riskier loan into a traditional one when her interest rate started to reset.
Three years later, Britten can't get a new mortgage, and her monthly payment has jumped by a third in six months. She can't afford her payments and may face foreclosure if her financial situation doesn't change.
As more ARMs adjust upward and housing prices begin to dip, many Americans like Britten can't refinance and are finding themselves trapped in too-high monthly payments. For those who can't make their payments, foreclosure -- the legal process by which the lender repossesses the house because the owner has defaulted on payments -- is the only way out.
Foreclosure figures just released by the Mortgage Bankers Association show that foreclosure activity fell in the first quarter of 2006 over the first quarter of 2005 for all loan categories except subprime loans. The MBA didn't specify how many of subprime loans were adjustable rate mortgages.
In the last several years, millions of Americans took equity out of their houses and refinanced. Many chose hybrid ARMs , which featured a low introductory interest rate that resets upward after a set period of time, were easier to qualify for than traditional loans.
This year, more than $300 billion worth of hybrid ARMs will readjust for the first time. Monthly payments will leap too, many beyond what homeowners can afford.
For example, Britten's monthly payment jumped from $1,079 to $1,340 at the beginning of this year. It rose again on June 1 by another $104 and is scheduled to increase again in December.
``I've gotten rid of all my credit cards and I'm not supposed to refinance for another year," she said. ``All I can do is tread water right now."
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