Adjustable Rate Mortgages Present Continuing Risks for U.S. Housing Market.

SACRAMENTO, Calif. -- According to the Federal Home Loan Mortgage Corporation and other real estate companies such as The Home Buying Center.com more than $1 trillion in adjustable rate mortgages (ARMs) will reset this year bringing higher monthly payments and a corresponding increased risk of foreclosure to thousands of homeowners.

Analysts are divided on what this change will mean for the American and global economies, but many families and commentators are worried. Many Californians, and their counterparts in the rest of the country, live paycheck-to-paycheck and, because of unrestrained credit card spending, actually spend more than they make every year.

According to DataQuick Information Systems in 2000 only 18.9% of homebuyers in the Sacramento region purchased properties using ARMs. This number dropped in 2001 to 12.1%, but spiked to 65.1% in 2004, and 72.8% in 2005. The number for 2006 was 62.5%. ARMs were created for sophisticated buyers who planned to live in a given house for a few years, but their use has mushroomed dangerously.

"Offering people long-term credit secured by a mortgage on a single family home has been one of the tools that helped fuel the American dream of home ownership," opined Patrick McGilvray, J.D., President of http://www.TheHomeBuyingCenter.com. He continued, "In recent years though, this tool has become perverted and only a very few will ultimately profit. In years past people could not buy a home until they showed that they had the discipline, or luck, to be able to provide a 20% deposit on the home they wanted. I believe that 100% financing arrangements and the proliferation of ARMs will ultimately hurt the American consumer and our economy as a whole."

The deterioration in fiscal responsibility of average Americans has been a trend for a long time, but in recent years the skyrocketing value of homes in the West, especially the central valley of California, has provided homeowners an easy way out. Mortgage lenders, banks in particular, have reaped large revenues from fees, points, and interest charges by selling home equity lines of credit (HELOCs) and refinancing schemes to homeowners.

Many homeowners were seduced by solicitations like, "pay off your high interest credit card debt." But, debt refinancing often creates a house of cards for ordinary working people. The stability of these houses will be tested in the months to come.