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Many with adjustable mortages feel pinched to pay

Source: Scripps Howard News Service
Date: November 07, 2007

As the national mortgage crisis worsens, nearly one-fifth of Americans with mortgages report feeling financially pinched by their monthly payments.

Homeowners with adjustable rate mortgages are almost twice as likely to say they're having trouble making payments than are people with traditional fixed-rate mortgages, according to a national survey of 811 Americans conducted by Scripps Howard News Service and Ohio University.

The bursting of the subprime loan bubble, a rash of foreclosures and rapidly rising adjustable rate mortgages have pinched homeowners' pockets and made it more difficult for would-be home buyers to get a mortgage. The survey asked Americans about their mortgages, housing needs and wants, and whether they thought is was a good time to buy or sell a house.

Of those people who said they own a home, 42 percent said they have no mortgage, 7 percent said they have adjustable rate mortgages while 51 percent said they have fixed rate mortgages. One-third of those who have adjustable rate mortgages said they faced difficult payments, compared to only 17 percent of those who have fixed-rate mortgages.

The number of people feeling the tight times could continue to rise, said Ellen Schloemer, research director at the Center for Responsible Lending.

"I think even if people are making their payments now, if they have an adjustable rate mortgage, they're worried about them going up because they got a teaser rate or introductory rate," Schloemer said.

An increasing number of foreclosures and homes for sale have made real estate a buyer's market. Forty-six percent of people in the survey said it is a good time to buy a home in their community. Conversely, only 22 percent said it was a good time to sell.

"If you have wealth outside of your house, and you want to move up, this is a very good time," said Doug Elmendorf, a senior fellow at the Brookings Institution who specializes in economic studies. "If you're thinking to sell, you're saying 'there are already three houses on my street for sale."'

The situation has especially hurt those who are looking to move up from a starter house to a larger home: Only 8 percent of homeowners said they were looking to buy a new house.

"If you were counting on your house rising in value, you're going to be in more trouble now," Elmendorf said.

Potential home buyers are also facing tighter lending restrictions. Twenty one percent of Americans surveyed said they knew someone who had trouble getting a mortgage.

"The people who were taking out subprime mortgages six months ago, or a year ago, are unable to get those now," said Elmendorf.

Decreasing home prices have renters on the hunt as 28 percent said they were looking to buy a new home. But, if they don't have their finances in order, it could be a misstep, Schloemer said.

"People that can't afford to be in a home are better off renting," she said.

Those who do not have enough financing or who have bad credit should not fall prey to adjustable rate mortgages that could balloon after a low rate introductory phase, Schloemer said. If they do, they risk getting forced out of their homes after a short time.

"We talk about the American dream of home ownership, but it's become a nightmare for some people," she said.

The survey was conducted by telephone Sept. 24 to Oct. 10 among 811 adult residents of the United States who were selected at random. The survey was conducted by the Scripps Survey Research Center at Ohio University under a grant from the Scripps Howard Foundation. The survey has a margin of error of about 4 percentage points.