The widespread use of adjustable-rate mortgages by California homebuyers in 2003 could lead to a rise in defaults later this year as interest rates rise, according to Foreclosures.com, a Fair Oaks, Calif.-based investment advisory firm specializing in distressed property.Company president Alexis McGee said the San Francisco Bay area and Orange County are the most vulnerable, as 65% of buyers in the Bay area and 67% in Orange County used ARMs last year to qualify for more expensive homes. Over 15,000 homes in California entered the foreclosure process in both the fourth and the first quarters, she said. "With two consecutive quarters of flat foreclosure activity, we can say that defaults returned to their baseline after victims of the 2001 recession were washed out of the system," Ms. McGee said. "Now, we expect defaults to start rising again as steady rate increases put adjustable-rate mortgage borrowers at risk." The investment advisory firm can be found on the Web at http://www.foreclosures.com.

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