What Should You Do If You're Facing An ARM Reset On Your Mortgage

Facing an ARM Reset on Your Mortgage?

We’ve heard a lot about foreclosures due to unemployment leading the way in this recession; but toxic mortgages are still sinking many homeowners.  Adjustable rate mortgages were popular during the housing boom because they allowed the debtor to pay only the interest or very little principal for a certain number of years.  This way homeowners could afford the home of their dreams while avoiding paying the full cost of that dream, at least for awhile.  The hope was that they could resell the home at a higher price when their loan matured or maybe even refinance.  But the reality has played out a lot different than most homeowners had hoped.  Right now, homeowners with ARMs that are resetting are stuck with expensive monthly payments and facing foreclosure if they can’t pay.  So what does a homeowner facing this type of loan do?

  1. The most obvious answer would be to try to refinance the loan and avoid the eventual foreclosure that could come if you don’t make payments on the pricy loan.  But with the decreased value of many homes and the tight credit markets, refinancing is simply not a choice for many homeowners.
  2. The other hope that has been sold to homeowners is they can get a mortgage modification via HAMP or some other mortgage modification program.  Well, we all know what happened with that program.  Many homeowners hoping to get mortgage modifications ended up in foreclosure instead.
  3. Another option that has been working for some homeowners facing foreclosure because of an adjustable rate mortgage has been bankruptcy.  Filing bankruptcy often gives the homeowner the opportunity to strip off 2nd and 3rd mortgages and decrease their monthly mortgage payment significantly.  And even if they are not able to save their home from foreclosure in bankruptcy because they don’t have the income to pay the mortgage, bankruptcy can discharge the debt so that the company cannot come after them for payment at a later date.