Survey finds homeowners confused, worried about ARMsMortgagePress.comadjustable-rate mortgages, higher-risk sub-prime borrowers, general lack of understanding
Nearly half of homeowners with adjustable-rate mortgages admit
that they do not know how their adjustable-rate mortgages (ARMs)
adjust or reset, and nearly three quarters do not know how much
their monthly mortgage payments will increase when they do, a new
national survey reveals.
The survey, conducted Sept. 13-25 by Peter D. Hart Research
Associates for the AFL-CIO, reveals that ARM holders are generally
not concerned about mortgage payments until their rates reset.
Then, anxiety sets in as they realize their payments have risen
substantially. The use of ARMs for home financing has grown
dramatically over the past few years, particularly among
higher-risk sub-prime borrowers.
While many homeowners with ARMs remain personally optimistic, 62
percent said they believe escalating mortgage rates are hurting
their communities, and 48 percent expect they'll have to cut back
on everyday expenses like groceries, clothing and gasoline when
their payments increase.
For families earning $50,000 or less, that number is 80
percent.
Asked if they felt confident or worried about making their
monthly mortgage payments over the next few years, 41 percent of
homeowners whose ARMs had reset said they were worried, compared
with 18 percent of those whose ARMs had not reset. Among borrowers
with incomes under $50,000, 59 percent were worried, including 38
percent who were very worried.
"What we have here is a tale of two communities," said AFL-CIO
President John J. Sweeney. "The trap door between the American
dream and the American nightmare for these homeowners is the ARM
adjustment. This survey shows that many homeowners simply are not
prepared for the steep rise in mortgage payments that this market
inflicts on ARM holders."
The poll shows that of those homeowners whose ARMs had reset, 37
percent had interest rates at eight percent or higher, well above
the current market rate for prime fixed-rate loans, and 16 percent
had interest rates at 10 percent or higher. After the reset, the
average increase in monthly mortgage payments is approximately
$291, a 10-percent cut in after-tax pay for a family earning
$50,000 a year.
Two in three (64 percent) of those whose rates have reset do not
recall their lender telling them how much more their payment would
increase, and 32 percent dont recall being told when their interest
rate would increase. Twenty-three percent of all respondents said
they had been late making a mortgage payment at least once in the
past 12 months, and that proportion jumps to 37 percent among those
whose rate has increased.
The poll also found substantial support for government action to
protect consumers. Fifty-one percent said they think the government
should assist people with ARMs facing foreclosures, and 77 percent
said the government should do more to regulate the mortgage
industry.
Predatory lending practices not only involve sticking consumers
with bad loans, but also in failing to provide homeowners with the
basic information they need to survive in this market, said
Sweeney.
Despite a general lack of understanding about their
adjustable-rate mortgages, 79 percent said they believed the
information they received from their lenders was mainly accurate
and truthful.
Sixty percent said they got their ARMs from Mortgage Brokers,
and 39 percent said they got their mortgages directly from
banks.
For more information, visit www.aflcio.org.
