Arizonans brace for summer mortgage resets J. Craig Anderson The Arizona Republic Jul. 6, 2008 12:00 AM Resets rising As of February, an estimated 157,000 adjustable-rate loans had yet to reach their initial reset dates in Arizona, according to economic research firm First American CoreLogic, based in Santa Ana, Calif. The total value of those Arizona loans was roughly $38.7 billion, company spokeswoman Meghan Donovan said. First American determined that nearly 10 percent of those loans would reach their initial reset dates between March and August, with the highest monthly total - about 2,600 loans, valued at nearly $665 million - occurring in July. The number of monthly resets is then expected to gradually decline and stabilize until a second, even more dramatic increase in resets occurs in mid-2010, according to First American's research. The second spike represents so-called "option ARM" adjustable-rate loans, in which borrowers are allowed to make lower monthly payments until the loan reaches an automatic 5-year reset date or the borrower hits the maximum limit on negative amortization, usually 110 percent to 125 percent of the original loan amount. The vast majority of adjustable-rate mortgages in Arizona that have yet to reach their initial reset dates were issued from 2004 to 2006, when the housing market crested and fell, Donovan said. The lending industry has since phased out most of the loan types responsible for the ensuing foreclosure crisis, but homebuyers who agreed to those terms are still contractually bound to fulfill their obligations unless the lender is willing to renegotiate, said Murphy, who runs a free, nonprofit foreclosure intervention counseling service in Phoenix. Since September, calls from struggling borrowers with adjustable-rate loans have increased from a small fraction of all inquiries to nearly half, Labor's counselor Liz Henry said. "Prior to that, it was more traditional loans," she said. Murphy said most lenders won't even consider modifying a loan to reduce the effects of a reset until the borrower is at least 60 days delinquent and has demonstrated a willingness to eliminate excess spending, sell off luxury items and even take a second job if necessary to keep the home. Even then, the mortgagor must have sufficient monthly income and a history of timely payments before the reset made them unmanageable. "They're not going to bend over to the extent some of these homeowners need them to," Murphy said. The surge in resets has made it far more difficult to negotiate agreements that will keep homebuyers out of foreclosure, Murphy said. "Up until six to eight months ago, our success rate was up in the 90 percent range," he said. "That's when some of those ARMs started to reset."