First, the decline in home values made it impossible for people to refinance ARMs (Adjustable Rate Mortgages) that were coming off the initial low teaser rate.
Now, as John Leland explains in his New York Times article, the quadruple option ARMs are expiring.
Why would people pay hundreds of thousands of dollars more than their house is currently worth?
An increase in foreclosures is bound to happen.
No one offers these type mortgages any more.
You could pay interest only, at different effective rates, or, an amount less than the interest rate. This is called negative amortization, because, after any period of time, the mortgage balance goes UP rather than down.
So, if you chose that option, thinking you would re-finance, or even sell, your home, because, every one knows, real estate values always go up:
Now, not only has your home’s value gone down, but the balance on your mortgage has gone up.
And nothing you can force the mortgage company to do about it, in or out of bankruptcy.
Until we get bankruptcy law changed to allow judicial mortgage modification.
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