Many Americans cannot refinance out of this squeeze as more hybrid adjustable rate mortgages adjust upward and housing prices dip. They are finding themselves trapped in too-high monthly payments, and some face foreclosures.

Foreclosure figures just released by the Mortgage Bankers Association show that foreclosure activity fell in the first quarter of 2006 over the first quarter of 2005 for all loan categories except subprime loans. The MBA did not specify how many of subprime loans were adjustable rate mortgages.

Featuring a low introductory interest rate that resets upward after a set period of time, ARMs were easier to qualify for than traditional fixed-rate loans. Rates on a 30-year fixed were at 6.54% in 2003, while ARMs carried a 3.76% rate.

Brad Geisen, president and chief executive of property tracker Foreclosure.com, said that ARMs are a ticking time bomb. He said that if the rate of appreciation is not there, then there is an increase in foreclosure sales.

Because of California's still-active housing market, homeowners there can sell their properties before going into foreclosure. The median home price reached $468,000 in April in California. It now leads the nation in the percentage of homes purchased with adjustable rate mortgages. Nationwide, ARMs account for 24% of all home loans.

As the housing market cools, even investors in foreclosures are having a harder time finding good deals. Falling home values are also affecting homeowners' ability to refinance into a traditional 30-year fixed rate loan to avoid foreclosure.

By M. Sese
http://realestatepress.org