There are currently $8.5 trillion in outstanding debt a quarter of which is owed by adjustable rate mortgages (ARMs). Adjustable rate mortgages are at the heart of a huge national debate revolving around predatory lending practices and they are exactly what the problem is.

In a nutshell there are a lot of people with ARMs who had not had the mortgage terms explained to them adequately and, as a result, find themselves suddenly unable to keep up with repayments and unable to keep the house which they had bought which are then put up for foreclosure. In my view these are just the wrong type of properties to foreclose on and I will explain why.

Foreclosures are an integral balancing mechanism of our financial system and, as a regrettable but necessary percentage, are always there. The more house sales and growth the system experiences the more foreclosures you will get. As a percentage these are steady, even if in terms of numbers they go up, because that’s how balance is maintained in the system.

Adjustable rate mortgages completely change the picture. Because many were sold in ways that did not make it clear to home owners what the payments would go up to they have become a ticking timebomb about to explode in the face of people who are not adequately prepared to deal with it and who should not have been sold these mortgages in the first place.

This amounts to mis-selling and as such needs to be addressed in ways beyond those currently available, which means that legislature is required, because it otherwise leads to foreclosures at a rate that generates an imbalance in our economic system and short-circuits the ability of the foreclosure mechanism to create stability in our economy.

As a real estate foreclosure expert I know for a fact that anything which pushes foreclosures into a zone that significantly increases the percentage they reflect of the house buying market is a bad thing. It leads to a depression of the market, dropping prices, tighter credit, less available money and this also leads to fewer house sales, fewer new houses being built, fewer jobs in the economy and generally a bad time for all concerned.

All this has come about because, unfortunately, there are unscrupulous lenders who are interested more in how many mortgages they sell than who they sell them to and how they do it. Such short-term profiteering is damaging to the economy and hurts the reputation of real estate investors as well as foreclosure experts and mortgage lenders. Legislation has the power to force mortgage lenders to be a lot more transparent in the way they lend money to prospective house owners and that cannot come a moment too soon.

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