Foreclosures Jump

My parents live in California and own their home outright, a tremendous rarity in this day and age. In the last five years, my father watched as his neighbors re-financed their mortgages to add swimming pools and other improvements, riding the wave of low interest rates, interest-only mortgages, and 5/1 ARMs. He shook his head and told me that it was only a matter of time before the bank owned half the neighborhood. It looks like that time may be coming soon:

With real estate markets slowing and mortgage rates well above levels of recent years, times are getting tougher for homeowners - the number of homes entering into some stage of foreclosure is surging, according to a survey released Wednesday.

Some of the bellwether real estate market states are among the leading foreclosure markets. Florida, had more than 16,533 properties in foreclosure in August. That led all states and was 50 percent higher than in July and 62 percent higher than in August 2005.

California foreclosures are increasing at an even faster annual rate, up 160 percent since last year to 12,506. And the formerly red-hot Nevada market recorded a spike of 24 percent compared with July and a whopping 255 percent increase from August 2005.

And those who opted for fancy mortgages with all their bells and whistles, instead of the 30-year fixed rate (like my wife and I)?

For a homeowner with a 5/1 ARM (an adjustable rate loan with an initial fixed rate for five years that then adjusts annually) that's now resetting, the adjustment could add at least two percentage points to the interest rate. That could send the payment on a $200,000 loan up from about $950 a month closer to $1,200.

Or, as is much more likely in California, the payment on a $600,000 loan goes from $2,850 to $3,600. That's quite a chunk of change. I'm sure plenty of folks thought a 5/1 ARM would work great, as they'd never own the house that long. But with the housing market cooling, I am sure people are stuck in houses they can't sell, and now they have mortgages they can't afford. Sure makes the half-point they saved by getting an ARM seem silly, and the financed swimming pool seem downright insane.