"When mortgages adjust up," points out Maggie Amado-Tellez of the nonprofit Chicanos por la Causa, "people can't afford the payment."
Attorney Scott Gibson works with the firm Deed and Note Traders, and he agrees. "A lot has to do with the type of financing," he says of people facing foreclosure. "When a homeowner gets into the real interest rate (of an ARM), they can't make their payments."
Amado-Tellez notes, "Usually, people are getting into products they don't understand." The state of Maine is so concerned about this lack of knowledge that, according to The New York Times, it recently enacted legislation "that requires lenders there to evaluate a borrower's ability to repay a mortgage and recommend only loans that make sense for them."
The complexity of ARM loans can be extraordinary. After an initially attractive low monthly payment based on a minimal interest rate, the interest may be adjusted substantially upward, a determination made by a host of factors, including the financial index to which it is tied. Other variables involve the loan's margin above the index rate as well as the caps placed on the amount the interest can fluctuate.
The sorry situation of seeing their mortgage's interest rate move ever higher is exactly what has happened to many people both locally and nationally in the last year, resulting in a growing number of foreclosures.
For the first five months of 2007, the number of "Notice of Trustee's Sale" recorded with Pima County totaled just more than 1,600, a whopping 55 percent increase from the same period a year earlier. The January through May figures for 2006 were actually lower than for 2005, but that downward trend has definitely been reversed.
This year's monthly totals have ranged from a low of 276 in February to 398 for May. That last figure alone is a 90 percent increase over the number just 12 months earlier.
The number of people contacting Pima County's Community Action Agency about mortgage problems reflects a similar trend. Program manager Norma Gallegos reports these figures will rise by almost 50 percent for this fiscal year when compared to the last one.
The rapidly escalating number of foreclosures isn't expected to dissipate any time soon, either. Certain ARMs may reach 11 percent in the near future, or 4 percentage points above the fixed mortgage rate.
While some people see opportunities to make money by cheaply buying homes facing foreclosure, on the steps of the County Courthouse a few weeks ago, more than a dozen homes were offered--but the four potential bidders in attendance quickly passed on each one of them.
Homes like these, on which the "Notice of Trustee's Sale" process has been initiated, are found all over town. Last month, they included three houses in widely divergent parts of Tucson.
Located along a sloping street in the prestigious Starr Pass neighborhood, a burnt tan home stands out among those around it, all of which have a light desert sand stucco finish. But the home is also different because it was in foreclosure because of a loan in excess of $400,000.
Fourteen miles southeast, an abandoned concrete block house has hundreds of small weeds growing out of its decomposed-granite front yard. This house is also subject to foreclosure due to a loan of more than $100,000.
In the center of the city, a large mesquite tree dominates the front of a red-brick home while three children's bicycles lay in the dirt yard. This home, too, faces foreclosure because of a $35,000 loan.
The growing number of foreclosures certainly isn't restricted to Pima County. One estimate puts the nationwide jump at 25 percent just between February and March of this year.
Amado-Tellez of Chicanos por la Causa has some advice for the thousands of Tucson households facing the foreclosure dilemma.
"If they're in trouble, they need to start talking to their lender, and don't hide from the problem," she suggests. "They want to be proactive, because the situation is not going to just go away."
Contacting a lending company's "loss mitigation agent" is a necessary initial step, Amado-Tellez says, since the mortgage terms may be negotiable. Another possible move is to get in touch with one of several nonprofit agencies in town that offer assistance.
"There are lots of nonprofits that provide 1-on-1 counseling along with workshops," Amado-Tellez says. But, she adds, some people don't like providing the documents that are needed to analyze a person's financial situation.
If counseling doesn't work, Chicanos por la Causa, the Community Action Agency and other local organizations have limited supplies of funds to assist with mortgage payments. But as Gallegos from CAA explains--"If they're $3,000 or $4,000 behind, that's too far for us."
Amado-Tellez seconds that sentiment. "We have monetary assistance for some," she says, "but the funds are used fast. Once the trustee-sale process has begun, it requires more than we can give."
In an era of falling interest rates, ARMs may have once made sense. But that period is now over.
Amado-Tellez says of homeowners with an ARM: "If they're already in one, they may want to think about refinancing."