CFA: ARMs Preferred by Minorities, Low-Income

Minority and low-income Americans mostly prefer adjustable-rate mortgages, even though they are vulnerable to losing their homes if interest rates rise, according to a survey conducted by the Consumer Federation of America."The 25% of Americans who say they prefer ARMs are younger, poorer, and less well-educated than those who prefer fixed-rate mortgages," the CFA said. "Fixed-rate mortgages are preferred by 76% of those with incomes over $75,000, by 70% of college graduates, and by 75% of those between the ages of 45 and 64." CFA executive director Stephen Brobeck said lenders "who aggressively market ARMs to lower-income consumers and those with low credit scores are acting irresponsibly. Given the high probability of interest rate increases, an adjustable-rate loan made to a family which can barely afford the initial monthly payments represents a ticking time bomb." The CFA urges lenders and consumers to use caution when marketing and purchasing ARMs. "In a rising interest rate environment, investors should be particularly leery of purchasing subprime adjustable-rate mortgages," said Mr. Brobeck. "These high-priced ARMs have the potential to harm investors as well as borrowers."