In the past 5 years, many consumers acquired 100% financing, Interest-Only, short term fixed rates that become ARMS and Negative Amortization loans.  These consumers are now feeling the tightness of the increasing rates on the ARM market.  Many consumers have purchased higher priced homes and attained these "lower payment" mortgages to be able to afford them.  Now, rates are increasing and so are thier minimum payment requirements. 

So, these homeowners are in a very difficult situation.  Since there has been literally minimum growth of equity in homes in the past year, these consumers are not able to refinance into a more secure, fixed rate.  I am predicting that foreclosure rates will rise due to this predicament. 

The problem here is that consumers will be unable to sell thier home and pay off the entire mortgage amount, because the house isn't worth 6% more than it was bought (covering realtor commissions).  Also, since they are in an adjustable rate, thier payment will significantly increase to a point where consumers are unable to afford it.  The only solution:  Foreclosure. 

I am curious to see how  mortgage companies react to this type of situation.  I'd like to hear your opinions...