The Bush administration is pushing its plan to help subprime borrowers whose loans are due to reset to higher interest rates next year. But left out of the mix are hundreds of thousands of borrowers with good credit who could face sharp increases in their payments.
These homeowners could be the next wave of trouble for the mortgage industry. They took out what are known as option adjustable-rate mortgages, or option ARMs, which give borrowers a choice about how much to pay back each month. If they choose to make only the minimum payment on a regular basis, their loan balance can actually rise.
That is particularly a problem when home prices are falling. Borrowers who get in too far over their heads may not be able to refinance their loans or sell their houses for enough money to pay the loans back. The result, some economists say, may be another spike in foreclosures.