I’m sure you’ve heard the scourge of foreclosure lately. And you might even know that many of the homeowners experiencing foreclosure also had an adjustable rate mortgage.

In a nutshell, what happened was the short term adjustable rate mortgage had a low fixed rate that lasts between 2 and 7 years. Once that time is up the low rate begins to adjust with the market - usually in an upward fashion.

That’s not so bad in and of itself because the plan is to refinance into another mortgage, maybe even right back into another adjustable because the short term rates are attractively low.

However, the home value must support the loan amount and with declining values that becomes a problem. Remember, the appraisal value is based on recent comparable sales, not what you think it’s worth. Just because you put $40,000 in upgrades into the home in the last 3 years doesn’t mean that value is reflected on the appraisal.

How many home owners have I talked to who estimated their value at say $500,000 only to get the appraisal back with a value of $400,000? Way to many to count.

Everyone has to realize that comparable sales (within the last 6 months) is what drives your home value, not what you paid for it 8 years ago. We all got punch drunk on the yearly increases of 20%+ in recent years however now the market must correct. In fact I’ve been patiently waiting for the correction - home prices have been too high for too long.

So, why would anyone get an adjustable rate mortgage when it appears that the ARM loans are at the heart of the recent foreclosures?

3 Reasons…

(1) The short term low rates on the ARM loan suck unknowing, less than financially savvy homeowners in like a vacuum.

(2) Some homeowners don’t meet the lending criteria for a longer term loan such as the 30 year fixed so the short term lower rate gets them qualified. Plus, lenders typically tack on a 2-3 year pre payment penalty (PPP) which allows for an even lower rate - cranking up the vacuum power.

(3) Bad credit borrowers had no other choice but to take a sub prime ARM loan with a pre payment penalty simply because their credit score was low.

With all of the excellent credit repair companies available, it still surprises me that people go around living with negative items on their credit report. If you’re someone still living with bad credit - stop waiting and get it fixed.

Thankfully, the law gives you the right to dispute any credit listing on your credit reports that you feel may be inaccurate, untimely, misleading or unverifiable (questionable items). If a credit bureau can’t verify the accuracy of a disputed listing, then it must be removed from your credit report.

Getting your credit handled can give you the ability to get a longer term fixed rate loan and avoid the potential for foreclosure.

The two available online services are;

Lexington Law Credit Repair << best service available.

Ovation Law Credit Repair.