WARREN, Mich., May 19, 2011 /PRNewswire/ -- At the beginning of the current real estate crisis, Adjustable Rate Mortgages (ARMs) were a big problem. With interest rates so low recently, they have fallen off the radar screen. But now a prominent Detroit-area Bankruptcy attorney is predicting that ARMs could become a problem again in the near future.
"The problem is that a significant part of our housing is still mortgaged with ARMs," Greiner said. "Interest rates have been at historic lows for years now. But we are already starting to see upward pressure on interest rates. Once interest rates start to rise again, ARM payments will start to rise again."
Greiner pointed out that with interest rates as low as they have been for the past few years, the Adjustable Rate Mortgages have become a non-issue. But that was not always the case. "The ARMs are what originally caused this crisis," Greiner said. "People were unable to afford their mortgage payments when the rates adjusted, and that is what started the foreclosures. Since then, the foreclosure crisis has been driven by the larger economy, not by the ARMs adjusting. But when interest rates start rising again, we will see another wave of foreclosures due to the ARMs going up again."
Despite the fact that the Federal Reserve recently declined to raise interest rates, that will not continue forever, Greiner pointed out. So, for homeowners who currently have an Adjustable Rate Mortgage on their home, Greiner recommends three steps to protect themselves in this crisis:
- If possible, refinance: this may be difficult considering the current economic conditions, but a homeowner with good credit and equity in his or her home may be able to refinance to a fixed rate mortgage.
- Contact the mortgage company for a mortgage modification: oftentimes, people are asking too much of their mortgage companies, like asking for forgiveness for part of the debt or for a reduction in payments. Homeowners may have better luck, however, if they simply request that their interest rate gets fixed. Greiner did say, however, that homeowners should never pay anyone for assistance with a mortgage modification. "There is nothing someone else can do that you can't do for yourself," he said.
- Talk to a Bankruptcy attorney: A homeowner who has a relatively short period of time left to pay on a mortgage or who has a second mortgage may find relief in Chapter 13. Greiner pointed out, however, that filing Bankruptcy often puts pressure on the mortgage company to do a modification where they might not have otherwise.
Greiner said that the real solution to this problem lies in Washington. He said that he hopes Congress takes steps to finally resolve this crisis before it gets worse. "Up until now, the foreclosure remedies passed by Congress have been nothing more than window-dressing," Greiner said. "If Congress really wants to avoid the ARMs driving us into another, deeper recession, it needs to do something real now."
Greiner is the founder and President of the Financial Law Group, a Detroit-area law firm specializing in Bankruptcy (www.financiallawgroup.com). He has represented thousands of individuals, businesses and creditors in Bankruptcy. He is also the writer of the recently-published Bankruptcy 101: An Insider's Guide to Filing Chapter 7 Bankruptcy on your own without an Attorney, and he is the creator of the website myeasy7.com which assists individuals in filing Chapter 7 Bankruptcy without an attorney. He blogs at myeasy7.com/blog.