Industry NewsMortgage

Does rise in adjustable-rate mortgages mean more foreclosures?

Industry disagrees on market impact

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In Alexis McGee's view, the trend toward adjustable-rate mortgages will lead to one thing–more mortgages in default and more foreclosures. That's because as interest rates inch up, so will the cost of those riskier loans, which varies over time unlike fixed-rate mortgages. Consumers are often attracted to ARMs because they can cut borrowers' monthly payments, allowing them to save that money for other purposes. "My concern is that too many people are opting for them," said McGee, president of Foreclosures.com. "And they're opting for them not to save money on the payments, but to get more house." The latest mortgage applications survey released by the Mortgage Bankers Association showed that ARM applications had increased to 33.3 percent of total applications. Just six months ago at the end of January, ARM applications made up 26.3 percent of total applications. In that time mortgage interest rates have risen. At the end of January, the 30-year fixed rate was 5.58 percent; two w...