Top 10 areas at risk for mortgage-rate shock

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CHICAGO (MarketWatch) -- Communities that will be hit hardest by rising interest rates and their effect on adjustable-rate mortgages are concentrated in the South and Midwest, according to a report released by watchdog group ACORN on Tuesday.
According to the group's study, "The Impending Rate Shock: A study of home mortgages in 130 American cities," the top 10 areas most at risk for "rate adjustment shock" include Detroit and Flint, Mich.; Memphis, Tenn.;


CHICAGO (MarketWatch) -- Communities that will be hit hardest by rising interest rates and their effect on adjustable-rate mortgages are concentrated in the South and Midwest, according to a report released by watchdog group ACORN on Tuesday.

According to the group's study, "The Impending Rate Shock: A study of home mortgages in 130 American cities," the top 10 areas most at risk for "rate adjustment shock" include Detroit and Flint, Mich.; Memphis, Tenn.; Jackson, Miss.; McAllen, El Paso, Laredo and Brownsville, Texas; Springfield, Ill.; and Birmingham, Ala. ACORN is an acronym for Association of Community Organizations for Reform Now and it advocates for low- and moderate-income families.

High-cost loans represented more than two of every five home-purchase and refinance loans in the 10 communities most at risk, ACORN said in a news release.

Adjustable-rate mortgages account for 24% of all home loans nationwide, according to the report, but ARMs made up three-fourths of all subprime home loans in 2005. In 1999, half of all subprime loans were ARMs. Subprime loans are those made to borrowers with blemished credit records and often come with high rates and fees.

Sixty percent of subprime loans are set to have their interest rates changed by the end of the year, ACORN reported, adding that the impending hikes "pose a huge threat to the security of individual homeowners and entire neighborhoods."

For its study, ACORN analyzed data available under the Home Mortgage Disclosure Act. It looked at 130 metropolitan areas and the disparities between borrowers of different race and income levels.

Borrowers with subprime loans are already paying higher interest rates, are more likely to have lower incomes and don't have as many resources to cope when their mortgage rates adjust higher, ACORN said in the news release.

The study also reported that minority neighborhoods are at a greater risk of rate shock than neighborhoods that are predominantly white, due to the high share of subprime loans held by homeowners in the communities. Upper-income minority borrowers are also often at a greater risk than lower-income white borrowers, according to the report.

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