A little more good news - ARM "time bomb" defused

[Lusitan]

why are some people who could qualify for one taking the ARM instead? I can only think of a few possible reasons:
1) "I've got the money to pay the whole thing off, and will do so if rates climb. For now I just want the lowest rate possible." That's reasonable--but if rates take off because of inflation, wouldn't it be best to have a locked-in 5.5% 30 yr mortgage and pay it off slowly with ever-less-valuable dollars?
2) "I like these rock-bottom ARM rates now, and I'll get a fixed rate mortgage if it looks like rates will shoot up." Seems pretty risky--being able to reliably foretell the upcoming interest rates ahead of their climb and betting that cheap long-term $$ will be available as the liquidity "crisis" continues.
3) "I don't want to lock in a 30 yr fixed because I think rates will go down." Maybe so--but there's not much "down" and there's lots of "up" from here.

Those are the reasons that make sense; I'd venture a guess that makes up about 10% of the people who have used ARMs.

The other 90% is made up of:
4) People who are buying more house than they can afford, and can only swing it by taking on a risky ARM loan (they either do this knowingly, or just sign whatever is put in front of them by brokers eager to push the deal through).

 

[roger r]

Lower interest rates are certainly going to help this out, but other factors are the high rate of un- (or under)emplyment and the reduced asset value of households. I don't think we've dodge this bullet completely yet.