Housing. Finance. Credit. This three-headed monster is threatening the security of our friends, families and millions of Americans. The beast has left them homeless, destroyed nest eggs, ruined businesses, and crushed consumer confidence.

There is no consensus when the economy will pull out. Yet everyone on the recovery bandwagon is looking for light at the tunnel's end. Recently, Federal Reserve Chairman Ben Bernanke said recovery "is in sight" and there are "tentative signs" the recession may be easing.

That cautious optimism boosts the housing industry, but with certain limitations. SAHBA Director John Strobeck sees it as "an interesting dynamic." He is concerned that the recovery will occur only in segments of the economy.

It's possible that stocks, financial institutions, manufacturing, technology and retail will recover to an extent, "but not housing and auto," said Strobeck, owner of Bright Future Business Consultants. "Housing will be in deep trouble until 2013."

Blame it on the monstrous wave of five-year Adjustable Rate Mortgages that begin to reset later this year.

From 2003 to 2007, ARMs were wildly popular as the mortgage of choice. Business Week reported that option ARMs might be "the riskiest, most complicated home loan product ever created."

Fix foreclosures first

Global financial giant Credit Suisse reports this second set of refinancings won't peak until 2011. Because economic conditions changed so dramatically, it will be hard for many homeowners holding five-year ARMs to refinance.

The feared result is another wave of foreclosures.

There are about 60 percent more five-year ARMs than the three-year ARMs that destroyed the housing, credit and financial markets. That increase is "a very significant number," said Charlie Bowles of Diamond Ventures and a SAHBA board member. "Now is the time to have the caution light on very strong."

Elliott Eisenberg, senior economist for the National Association of Home Builders, believes the nation's economy cannot stabilize until housing stabilizes. Government rescue programs will fail until foreclosures are fixed.

Eisenberg believes foreclosures are the core cause of America's economic crisis. If five-year ARMs are ignored, foreclosures will accelerate. The current, relative calm in the housing market is not sustainable.

According to RealtyTrac, Arizona is in the top four states for foreclosure rates. Nationally, Phoenix is No. 9 with one foreclosure for every 40 homes. Tucson is No. 52 with one foreclosure per 130 homes.

For 2008, Strobeck reported 7,000 local foreclosures. There are an estimated 2,000 in 2009 and 6,000 more in 2010.

As ARMs reset, many experts believe that high inflation due to massive government bailouts will happen. And when that hits, the situation worsens for people with ARMs.

The cost of the bailouts "could put mortgages on a collision course with inflation," Bowles said. "That could force even more foreclosures."

Options to take action

Since federal officials were slow to address the three-year ARMs debacle, it's important that the mortgage industry take control now. Credit Suisse estimates some $40 billion of five-year ARMs are due to reset.

The highest volume of foreclosures are projected to hit in late 2010 through 2011.

The government simply can't provide the infrastructure for the millions of loans that need reworked. Mortgage companies and homeowners must be proactive, to take things into their own hands.

Unfortunately, many people think the government will save them or they can time the bottom of the market. The government can't fix this, it's too big.

"My advice is to everyone with an ARM is to refinance now," said Bowles.

For ARMs holders, these tips will get you started:

• Take action to work something out. Start with the person who originated your loan.

• If that fails, seek local referrals from friends. Some lenders are willing to help borrowers stay in their homes.

• Call the Hope Now Hotline (1-888-995-HOPE) for free advice 24/7.

With mortgage rates near all-time lows, now, today, is time to refinance.

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