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ARM's are not to blame?

I read a couple of articles today that said ARM's (Adjustable Rate Mortgages) are not always to blame for foreclosures. However I find it ironic that the states with high amounts or ARM's also have high rates of foreclosures.

Now, while I am not an economist I do believe the two are connected and simply not a coincidence. The fact that my state has a high rate of ARM's and Foreclosures, and also has large amounts of REO's (Real Estate Owned/Bank Owned) and short sales demonstrates that Part of the problem were the ARM's given to people.

I would like to know what you think, please leave a comment with your thoughts. Are ARM's to blame, or is just a coincidence?

Here are links to the articles I read.

http://www.businessweek.com/lifestyle/content/jan2008/bw20080110_897815.htm

http://www.realtor.org/RMODaily.nsf/pages/News2008011602?OpenDocument

Posted by Ulises Romo on 01/16/2008 01:19 PM

Comments (8)

arms, adjustable rate mortgages, real estate, real estate owned, bank owned properties, short sale, realtor, realtors, real estate market

8 Comments on ARM's are not to blame?

JAN

2008

I do not believe that any one factor is to blame for the way the past 12 to 18 months have transpired. That in cludes ARMs. It is/was a culmination of multiple factors coming together at the same time which has lead to todays real estate / forclosure problems.

Sean Allen

Several market conditions have come together to form a foreclosure perfect storm. ARMs are a major factor, but the are not the only one.

I believe that most of the foreclosures are due people who have ARM loans and now when they are not able to refinance and cannot afford the increased monthly mortgage, they have to foreclosure on the home. Yes there are other factors involved, nothing is just that one sided. but do you really hear of those with 15,20,30-year loans foreclosing.

ARM could stand for Am Relocating Myself....they are connected!!!!

I am with one of the comments above. It is not any one thing. Over all it was greed and the need to have a bigger and new home. Banks and lenders never accurately forecast the real numbers of possible foreclosures. Banks and lenders expanded their credit guidelines too freely. Realtors were always willing to come up with that extra comp that wasn't really in the area to make the deal work. Realtors and mortgage people were always willing to tell people to get a 100% loan or to get seller's concessions. mortgage people, lenders, realtors, and banks were always willing to switch the person into a arm so they could afford the house payment and get approved for "that" house. Some mortgage people got too creative. Greed coupled with creativity made the mess.

Sean & Pilar: I should have mentioned in the article that I know ARM's are not the only factor or reason we have the market we do now. I know that it took many problems to get where we are now.

Rosario: I agree, ARM's played their part, but they are not the only reason for the real estate market.

Zen: Yes, I do hear of those 15, 20, 30 years in foreclosure. However, I do not hear or seem them as often and usual as I do for other reasons.

Mohamed: That is pretty funny, and sad at the same time.

Russ: Well put Russ. I agree that those are all factors that got us into this mess. I have had many angry comments when I made a post about that on my blog. I was being told I was heartless, and that I didn't understand. Its like this post, sometimes people think you don't understand that other factors contribute to the problem as a whole.

Thanks for all of your comments.

I do believe ARMs are to blame, but an ARM is just another product offered by a lender. Then there are the intrest only loans, and no doc loans. At the end of the day, the Lenders lended the money, the consumers over bought and are now in trouble. Lenders were reaping huge profits, and tried to make more money, now they are in trouble and begging the Government and taxpayers to bail them out.

Over all though, the consumer wanted a bigger and better house and were offered these products. Im sure there are needs for such products, but not for the typical buyer. Banks allowed the consumers to get what they wanted, the banks got what they wanted, and all was fine until it now. Eventually overspending will catch up to you. Its like transferring a balance to this card to free up the limit on that card, go go buy more stuff you cant afford. Banks allowed it, people are in trouble, banks are in trouble. Now it's time that everybody (buyers and lenders step back and buy what they can afford).

When we bought out home years ago, we were approved for a crazy amount. The lender assured us, no problem, i'm sure he was right, but it was way past what we as a married couple planning on having kids could afford. I'm a simple man with basic needs, luckily my wife has no desire to "impress" the masses either. So we bought a nice home, on a nice street, at a reasonable price. 7 years later, we are still happy and raising our kids.

Its a sad situation, but its the cycle of business. The weak will be thinned out, and the strong will remain. I could have raised my kids in a property 3 times the size of my current home, with a pool, and alot of acerage. We as buyers knew that though we could afford the payment that day, but looked further into the future. We opted for a standard 20 yr fixed rate and bought what we knew we could afford.

I will say, we did not impress our friends, we did not impress families, but we were only looking to impress our selves. We still have a home, others don't!

Chad: Great comment, I am in agreement with you. People, including myself sometimes buy things we don't need. I know for a fact that I need to learn to stick to my budget. Or I am going to get myself into trouble. Thanks for your comment.

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