Adjustable loans endanger homes for many in U.S

By Jim Christie

FOLSOM, California (Reuters) - Andrew Thompson fears his mortgage lender is poised to foreclose on his Folsom. California, home because he will not be able to make his monthly loan payment when it jumps to $3,200 from $2,100.

"As of May 1, I'm dead in the water," said Thompson, already behind on payments as the deadline nears for a higher interest rate on his mortgage. "I don't think I'm going to be able to keep it."

He is not alone. An estimated 1.1 million U.S. mortgage holders are at risk of losing their homes as rates reset on adjustable-rate mortgages originated between 2004 and last year, according to First American CoreLogic, a Santa Ana, California, firm that tracks property financing trends.

"Foreclosure rates are rising and they're expected to go on rising for the next couple of years," said Christopher Cagan, the firm's director of research and analytics.

Adjustable-rate mortgages helped fuel the recent U.S. housing boom with financing for buyers lacking cash for down payments and credit histories to qualify for fixed-rate mortgages.

Thompson's mortgage had an initial two-year no-interest term. An adjustable interest rate of 6.9 percent then kicked in, but that has now increased to nearly 10 percent.

Like Thompson, many borrowers have found their new rates too costly and mortgage defaults have soared -- especially among subprime borrowers charged high interest rates to offset weak or spotty credit backgrounds.

That has pushed at least 20 lenders in the subprime mortgage sector out of business over the past year and prompted concern that turmoil in the home-financing industry may worsen the housing slump and hurt the broader economy.