Sun, Jul 05, 2009
 Roger Yohem is vice president of the Southern Arizona Home Builders Association
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Special to the Arizona Daily Star
Tucson, Arizona | Published: 12.07.2008
As if the economic tsunami of foreclosures, bankruptcies and job losses in Southern Arizona isn't bad enough, there's another storm brewing. In 2009, another tidal wave of ARMs is coming.
ARMs, Adjustable Rate Mortgages, are considered by many economists to be ticking time bombs. At a certain trigger date (typically three or five years), or when certain preconditions occur, ARMs payments automatically mature or adjust (i.e., reset).
From 2003 to 2007, ARMs were wildly popular as the mortgage of choice. But because of increased layoffs and tighter lending standards, there are growing concerns that this could be the next wave of homes to enter foreclosure.
At the top of the housing bubble, many ARMs were "exotic," with complex, high-risk terms and conditions called options. With little or nothing down, ARMs allowed borrowers to make bare-minimum payments on beyond-their-budget houses.
Business Week magazine has stated that option ARMs might be "the riskiest and most complicated home loan product ever created." Since many borrowers opted to defer payments, their mortgage debt actually increased. At reset time, their payments are projected to rise.
In mid-2009, a fresh surge of ARMs begins to adjust. According to Credit Suisse, a global financial giant, this second wave of refinancings won't crest until 2011.
Credit Suisse predicts that many homeowners will face higher mortgage payments on homes that have lost value. For these borrowers, being "underwater" makes it significantly harder to refinance.
The feared result is foreclosure.
Fix foreclosures first
Elliott Eisenberg, senior economist with the National Association of Home Builders (NAHB) in Washington, D.C., said he believes the entire national economy cannot stabilize until the housing market stabilizes. Any economic rescue program by the federal government will fail until foreclosures are fixed.
Eisenberg said that foreclosures are the core cause of our nation's economic crisis. If these ARMs are not resolved, foreclosures will accelerate.
Eisenberg. who consults with SAHBA and other NAHB associations, cautioned local builders and regulators to beware. In early 2009, do not be fooled that the relative calm signals a turning point for housing.
It's a false bottom that will churn quickly once the ARMs adjust.
Locally, builders have acted responsibly to reduce inventory. They have made tough decisions to cut way back on construction and release employees.
Across the country, Eisenberg has not seen the same proactive, aggressive steps by governments.
"Knowing what's ahead, elected officials have a responsibility to their taxpayers to cut costs dramatically now, even if it includes layoffs. Instead, most will stall until their budgets collapse under the strain of full employment," he said.
Local governments "will ignore the connection that bad public policy toward development decreases tax revenues. No meaningful decisions will be made until their cash flow becomes a full-blown economic meltdown," he added.
My intent today is not to fuel the Doom & Gloom Bandwagon. Rather, it's to share information, to urge builders, business owners, lenders, citizens and elected officials to be aware of what's coming and plan accordingly.
There are options
● If you have a resetting ARM, take action now. Start with the person who originated your loan. Try to work something out together.
● If that fails, seek out referrals from friends or shop around locally. Various lenders are willing to work with borrowers to avoid foreclosure and stay in their homes.
Until the housing market is stabilized, your family and friends will lose jobs, businesses will go under, your home will continue to lose value and local governments will lose tax revenues that will force budget cuts in areas such as social services and public safety.
Through Nov. 1 for the year, 1,598 foreclosed homes sold in the metropolitan Tucson area. By yearend, about 2,000 foreclosures will have sold.
Foreclosures represent 16.1 percent of all resale home sales.
Unfortunately, the trend is upward. In January, foreclosures made up 11.7 of the resale home market. That skyrocketed to 26.2 percent for October.
No one benefits if thousands more people in our community fall into foreclosure by 2011. Stopping the flood of foreclosures is the first step to a sustainable economic recovery.
Editor's note: Find the Credit Suisse study, including a chart on page 47 marked Adjustable Rate Mortgage Reset Schedule, online at go.azstarnet.com/ARMs
Roger Yohem's e-mail address is ryohem@sahba.org
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