Month: January 2014

Strategies for getting a mortgage amid tougher federal rules,0,7587310.story#ixzz2rcNl6ncb

Home buyers who find it difficult to meet new standards for debt-to-income ratios when applying for a mortgage may find wiggle room if they search for it.

Nation's HousingBy forcing creditors to offer mortgages within a tightly confined box of complex underwriting requirements and imposing crushing financial penalties for infractions, new regulations are making lenders hyper-cautious about approving anybody. Above, a home in Princeton, Ill. (Daniel Acker, Bloomberg / January 22, 2014)
By Kenneth R. HarneyJanuary 26, 2014, LA Times

WASHINGTON — The verdict was nearly unanimous at a recent hearing on Capitol Hill: The new federal “ability to repay” and “qualified mortgage” regulations that took effect Jan. 10 will make obtaining credit tougher, not easier, this year, and potentially force large numbers of creditworthy home buyers to defer or cancel their plans.

What nobody addressed at the hearing, though, was the elephant in the room: OK, we’ve got a problem. But what, if anything, can buyers who find it difficult to meet the new standards do about it?

The testimony came from mortgage, banking and credit union leaders — even the head of a nonprofit Habitat for Humanity chapter. Though they didn’t dispute the good intentions of Congress or federal regulators in adopting the sweeping changes — banning or severely restricting most of the worst practices and loan features that facilitated the mortgage debacle of the last decade — they said the new rules amount to overkill.

By forcing creditors to offer mortgages within a tightly confined box of complex underwriting requirements and imposing crushing financial penalties for infractions, the new regulations are making lenders hyper-cautious about approving anybody, especially applicants who appear marginal or don’t quite fit the standard profile.

Bill Emerson, chief executive of Quicken Loans, one of the country’s highest-volume lenders, said the new rules could “impair credit access for many of the very consumers they are designed to protect.” These people are all over the country — young first-time buyers with student debt, middle-income minority buyers, self-employed individuals and those whose incomes are not received at regular intervals, plus just about anybody with household debt that exceeds 43% of income.

But are there ways for folks like these to improve their chances to get a mortgage this year, rather than waiting the estimated 12 to 24 months it may take for regulators to assess the effect of their rules and loosen up? Yes. Here are a few practical strategies.

•Debt ratios. Though the baseline standard for a new “qualified mortgage” is that a borrower’s total debt-to-income ratio should not be greater than 43%, lenders say there is wiggle room if you search for it. For example, conventional loans being sold to giant investors Fannie Mae and Freddie Mac may exceed 43% by a little, provided that your overall application makes it through the companies’ electronic underwriting systems, which take multiple factors into consideration beyond household debt burdens.

Dennis C. Smith, co-owner of Stratis Financial in Huntington Beach, says “we’ve had some people with 44% to 45%” debt ratios get through the hoops. Smith uses another technique when appropriate: getting a qualified co-borrower, typically a close relative, to join with the buyer and sending the application to Freddie Mac, which he says has a more generous rule on non-occupant co-borrowers than Fannie Mae. According to Smith, this allows a sharing or “blending” of household finances and can produce a lower overall debt-to-income ratio if the non-occupant co-borrower has a strong financial profile.

Another option: The Federal Housing Administration offers additional flexibility on debt-to-income ratios in its version of a qualified mortgage. Although the FHA has raised its insurance premiums recently, it is still an important potential resource if your debt levels are high and you have only modest down-payment cash. The FHA’s minimum down is still just 3.5%; Freddie and Fannie require at least 5%.

John Councilman, president of AMC Mortgage Corp. in Fort Myers, Fla., says the FHA’s current maximum acceptable debt-to-income ratio through its underwriting system appears to be around 50%. Applicants who have veterans status should check out VA loans for similar flexibility, and buyers in rural areas should look to the U.S. Department of Agriculture‘s loan program.

•Down-payment assistance. Toughened federal rules are shedding new light on some alternatives that get relatively little public attention — hundreds of bond-funded, low-cost mortgage assistance programs run by state and local housing finance agencies. According to an online service that tracks them and helps connect buyers with houses and funding,, there are nearly 1,600 such programs across the country. The site estimates that 70% of for-sale listings in any given market are eligible for at least one of these programs.

Bottom line: You may have options. Check them out with the help of an experienced loan officer who works with a variety of funding sources. Ask about that upfront.


Where are home sales headed?

Realtors: Strength hinges on job market

January 23, 2014

Existing-home sales experienced a slight increase, growing 1% to a seasonally adjusted rate of 4.87 million in December from a downwardly revised 4.82 million in November, according to the National Association of Realtors latest housing report.

In all of 2013, there were 5.09 million home sales, up 9.1% from 2012: the strongest performance since 2006 when sales reached an unsustainable high of 6.48 million at the close of the housing boom.

“It looks as if the job market will expand which suggests another pick up in home sales in 2014. Will it be as big…probably not. We saw almost a 9% gain in 2013, but for 2014 we expect it to be closer to 5% or 6%,” saidNationwide Chief Economist David Berson. “If you look at November and December together, they were the weakest months of the year, which was partly due to weather, mortgage rates and continuous home price gains.”

Home prices witnessed a slow month in November, recording a slight increase of 0.1% on a seasonally adjusted basis from the previous month, according to theFederal Housing Finance Agency’s house price index.

This marks the 22nd consecutive monthly price increase in the purchase-only seasonally adjusted index.

Over the past year ending in November, house prices were up 7.6%, which is 8.9% below its April 2007 peak and is roughly the same as the April 2005 index level.

The key indicator for housing will be what is going to happen with jobs and whether there is enough of a pickup to offset rates, Berson said. “And I think there will be.”

Additionally, the national median existing-home price for all of 2013 came in at $197,100, which is 11.5% above the 2012 median of $176,800: the strongest gain since 2005 when it rose 12.4%.

According to Lawrence Yun, NAR chief economist, housing has experienced a healthy recovery over the past two years.

“Existing-home sales have risen nearly 20% since 2011, with job growth, record low mortgage interest rates and a large pent-up demand driving the market,” Yun said. “We lost some momentum toward the end of 2013 from disappointing job growth and limited inventory, but we ended with a year that was close to normal given the size of our population,” he added.

But even with increased home sales, it could mean little without inventory.

Total housing inventory at the end of December fell 9.3% to 1.86 million existing homes available for sale, which represents a 4.6-month supply at the current sales pace, down from 5.1 months in November.

“There still aren’t that many homes for sale relative to demand,” Berson said. “There is not enough supply or competition.”

Quicken Loans Vice President Bill Banfield says December existing-home sales closed out what turned out to be a promising year for the housing market.

“We saw 2013’s total sales hit a seven-year high, albeit the slump in sales in the fourth quarter,” said Banfield.

“Despite the frigid temperatures that hit most of the country, it bodes well for 2014 that sales warmed up for the first time in three months, well ahead of spring selling season,” Banfield said.

California Foreclosure Starts Dip to Eight-Year Low

January 21, 2014

La Jolla, CA.–The number of California homeowners pulled into the formal foreclosure process dropped to an eight-year low last quarter, the result of an improving economy, foreclosure prevention efforts and higher home prices, a real estate information service reported.

A total of 18,120 Notices of Default (NoDs) were recorded by lenders and their servicers on California owners of houses and condos during the October-through-December period. That was down 10.8 percent from 20,314 for the prior quarter, and down 52.6 percent from 38,212 in fourth-quarter 2012. Last quarter’s tally was the lowest since 15,337 NoDs were recorded during fourth-quarter 2005. NoDs peaked in first-quarter 2009 at 135,431. DataQuick’s NoD statistics go back to 1992.

“Some of this decline in foreclosure starts stems from the use of various foreclosure prevention efforts – short sales, loan modifications and the ability of some underwater homeowners to refinance. But most of the drop is because of the improving economy and the increase in home values. Fewer people are behind on their mortgage payments. And of those who do get into trouble, many, if not most, can sell and pay off what they owe. Also, those who are underwater and close to slipping into foreclosure are far less likely to give up their homes now that appreciation has returned to the housing market. There’s a strong incentive to hang on,” said John Walsh, DataQuick president.

The median price paid for a California home was $364,000 in the fourth quarter, up 22.1 percent from $298,000 a year earlier. The median has risen more than 20 percent on a year-over-year basis for the last five quarters. It peaked in second-quarter 2007 at $485,500 and hit bottom at $235,000 in second-quarter 2009, DataQuick reported.

Continuing a years-long trend, mortgage defaults remained far more concentrated in the state’s most affordable neighborhoods. Zip codes with 2013 median sale prices below $200,000 collectively saw 3.1 NoDs filed last quarter for every 1,000 homes in those zip codes. The ratio was 2.0 NoDs per 1,000 homes for zip codes with $200,000-to-$800,000 medians, while there were 0.7 NoDs filed per 1,000 homes for the group of zips with medians above $800,000.

Most of the loans going into default are still from the 2005-2007 period. The median origination quarter for defaulted loans is still third-quarter 2006. That has been the case for more than four years, indicating that weak underwriting standards peaked then.

On primary mortgages, California homeowners were a median 8.7 months behind on their payments when the lender filed the Notice of Default. The borrowers owed a median $20,066 on a median $302,000 mortgage.

On home equity loans and lines of credit in default, borrowers owed a median $5,491 on a median $68,770 credit line. The amount of the credit line that was actually in use cannot be determined from public records.

The most active “beneficiaries” in the formal foreclosure process last quarter were Wells Fargo (3,287), JP Morgan Chase (1,182) and Nationstar (1,096).

The trustees who pursued the highest number of defaults last quarter were Quality Loan Service Corp (for Wells Fargo and others), Trustee Corps (OneWest Bank and Green Tree) and Northwest Trustee Services (JP Morgan Chase).

San Diego-based DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts. Notices of Default are recorded at county recorders offices and mark the first step of the formal foreclosure process.

Although 18,120 default notices were filed last quarter, they involved 17,773 homes because some borrowers were in default on multiple loans (e.g. a primary mortgage and a line of credit).

Among the state’s larger counties, loans were least likely to go into default last quarter in Marin, Santa Clara and San Mateo counties. The probability was highest in Tulare, Fresno and Riverside counties.

Trustees Deeds recorded (TDs), or the finalized loss of a home to the formal foreclosure process, totaled 8,205 last quarter – the second-lowest level in seven years, behind third-quarter 2013. Last quarter’s foreclosure total was up 2.2 percent from 8,030 during third-quarter 2013 and down 61.2 percent from 21,127 during fourth-quarter 2012. The all-time peak was 79,511 foreclosures in third-quarter 2008. The state’s all-time low was 637 in second-quarter 2005, DataQuick reported.

Foreclosures remained most concentrated in the more affordable communities. Zip codes with 2013 median sale prices below $200,000 collectively saw 2.0 homes foreclosed on in fourth-quarter 2013 for every 1,000 homes in existence. That compares with 0.8 foreclosures per 1,000 homes for zips with $200,000-to-$800,000 medians, and 0.2 foreclosures per 1,000 homes for the group of zips with $800,000-plus medians.

On average, homes foreclosed on last quarter took 9.0 months to wind their way through the formal foreclosure process, beginning with an NoD. That’s down a hair from an average of 9.1 months the prior quarter and up slightly from 8.9 months a year earlier.

At formal foreclosure auctions held statewide last quarter, an estimated 40.0 percent of the foreclosed properties were bought by investors or others that don’t appear to be lender or government entities. That was down from an estimated 48.0 percent the previous quarter and down from 41.8 percent a year earlier, DataQuick reported.

Foreclosure resales – properties foreclosed on in the prior 12 months – accounted for 6.7 percent of all California resale activity last quarter. That was down from 7.7 percent the prior quarter and down from 16.6 percent a year earlier. Foreclosure resales peaked at 57.8 percent in first-quarter 2009. Among the state’s larger counties last quarter, foreclosure resales varied from 2.0 percent in Marin County to 14.1 percent in Tulare County.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 12.5 percent of the state’s resale market last quarter. That was down from an estimated 13.5 percent the prior quarter and 25.8 percent a year earlier. Last quarter’s short sale level was the lowest since it was 11.7 percent in first-quarter 2009.

California December Home Sales

January 15, 2014

An estimated 34,949 new and resale houses and condos sold statewide last month. That was up 4.5 percent from 33,429 in November, and down 12.1 percent from 39,760 sales in December 2012, according to San Diego-based DataQuick.

December sales have varied from a low of 25,585 in 2007 to a high of 66,503 in 2003. Last month’s sales were the lowest for a December since 2007 and were 19.7 percent below the average of 43,547 sales for all the months of December since 1988, when DataQuick’s statistics begin. California sales haven’t been above average for any particular month in more than seven years.

The median price paid for a home in California last month was $365,000, up 1.4 percent from $360,000 in November and up 22.1 percent from $299,000 in December 2012. Last month was the 22nd consecutive month in which the state’s median sale price rose year-over-year, and the 13th straight month with a gain exceeding 20 percent.

In March/April/May 2007 the median peaked at $484,000. The post-peak trough was $221,000 in April 2009.

Of the existing homes sold last month, 6.7 percent were properties that had been foreclosed on during the past year. That was down from 6.8 percent in November and down from 15.8 percent a year earlier. Foreclosure resales peaked at 58.8 percent in February 2009.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 15.5 percent of the homes that resold last month. That was up from an estimated 12.5 percent the month before and down from 26.7 percent a year earlier.

The typical monthly mortgage payment that California buyers committed themselves to paying last month was $1,473, up from $1,418 the month before and up from $1,054 a year earlier. Adjusted for inflation, last month’s payment was 36.3 percent below the typical payment in spring 1989, the peak of the prior real estate cycle. It was 48.4 percent below the current cycle’s peak in June 2006. It was 59.8 percent above the February 2012 bottom of the current cycle.

DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

Indicators of market distress continue to decline. Foreclosure activity remains well below year-ago and peak levels reached in the last five years. Financing with multiple mortgages is low, while down payment sizes are stable, DataQuick reported.

Record rebound in home equity gives owners new options

Home SaleA “For Sale” sign stands in the yard of a single family home in Denver, Colorado. (Matthew Staver / Bloomberg / December 13, 2013)

WASHINGTON — The biggest story in American real estate in 2013 hasn’t gotten the attention it deserves, so let’s shout this out: Homeowners’ net equity holdings soared $2.2 trillion from the third quarter of 2012 to the third quarter of this year, according to new data collected by the Federal Reserve.

This is a record rebound for a 12-month period. And it’s crucially important in personal financial terms for hundreds of thousands of owners who for years have been underwater on their mortgages, meaning their homes wouldn’t sell for enough to pay off the loan.

They now have options they didn’t have before: They can sell their homes and not have to bring money to the closing. They may be able to borrow against their equity to help pay for college tuition, home improvements and other purposes. They may be able to refinance their mortgages without having to use a government-aided program.

Home equity is the difference between the mortgage debt outstanding on a residence and the current market value of the home. If your house is worth $300,000 and you owe the bank $150,000 — whether from a single mortgage or multiple loans — you have $150,000 in equity. If your mortgage debt totals $350,000 on a $300,000 house, you have $50,000 in negative equity.

Equity generally grows in several ways: You lower your debt by making payments to your lender, the value of your house increases because market conditions improve, or you raise the home’s sales value by remodeling or upgrading it.

Growing home equity not only signifies widespread recovery in household personal wealth, but also provides an important boost for the ongoing economic recovery. Consumers who have a cushion of equity in their homes are more likely to spend money on goods and services than those who don’t. The latest Fed “flow of funds” calculations show that owners have now seen their equity stakes grow more than $3.2 trillion from the post-bust low point in the first quarter of 2011.

During the financial crisis of 2008-11, millions of American owners fell into negative equity positions as the sale value of their homes plummeted. With the recovery that took hold in 2012, values began to turn upward again — dramatically so in some of the hardest-hit areas where prices had fallen fastest.

A new study released by CoreLogic, an Irvine real estate and mortgage data firm, estimated that 791,000 homes moved from negative to positive equity status during the third quarter of this year alone, and more than 3 million have done so since the beginning of 2013. Though 6.4 million homeowners continue to be underwater on their mortgage debt — in 13% of all homes with a mortgage — that is down from 7.2 million (nearly 15%) as recently as the end of the second quarter of this year.

CoreLogic researchers found that among the states that experienced the most severe property devaluations during the bust and have recovered impressively, some continue to have persistent hangovers of negative equity. In Nevada, nearly a third of all homeowners are underwater, despite price gains. In Florida, nearly 29% are still in negative equity, and in Arizona it’s nearly 23%.

In California, which suffered deep equity losses in non-coastal areas from 2007 to 2010, home values have roared back in the last two years. Now the state has just a 13% negative equity rate — significantly lower than Ohio (18%), Michigan and Illinois (both 17.7%), Rhode Island (16.6%) and Maryland (15.6%).

The states with the highest rates of homeowner equity are Texas and Alaska, where 96.1% of all owners with mortgages are in positive territory; Montana (95.8%); North Dakota (95.7%); and Wyoming (95.4%).

Other findings from the CoreLogic study:

•People with higher-priced homes are somewhat more likely to have positive equity than owners of lower-cost houses. Whereas 92% of all mortgaged homes in the country valued at more than $200,000 have positive equity, just 82% of homes valued at or below $200,000 do.

•Though homeowner equity wealth has increased rapidly in the last year, 10 million homeowners still have only modest equity stakes — less than 20% — and that puts them at risk should property values tumble again.

But another bust is nowhere in sight, thanks to tougher underwriting and regulatory oversight. So whether you’re one of the recent arrivals to positive equity status, or you’ve enjoyed it all along, the new year looks encouraging.

3 things to know about interest rates in 2014

Whether they rise or not, things are going to change

Interest rates will go up. Or they will stay the same. One of those two things will definitely happen in 2014, economists say, and some lenders and investors may have trouble adjusting to the change.

“We think rates are generally headed up. We have a growing economy both here and aboard,” said Mike Fratantoni, chief economist for the Mortgage Bankers Association (MBA). “We’re going to get some differing data like today’s jobs report which was off, but the next jobs report may see employment up. We are anticipating the job market is going to grow in 2014 and the recovery will continue.”

Further, he said, a longer-term factor will be that a growing federal deficit will put upward pressure on rates. And third, the Federal Reserve has already made it clear that if U-3 unemployment goes below 6.5%, it will let rates rise.

“We expect that in the third quarter the Fed will stop buying MBS and Treasurys, and start raising interest rates,” Frantantoni said.

MBA is projecting interest rates on the 10-year Treasury yield to go from 3% in the first quarter of 2014 to 3.3% by fourth quarter of 2014, averaging 3.2% for the year, and then creeping up to 3.5% by the last two quarters 2015, averaging 3.4% for 2015.

MBA projects that 30-year fixed mortgage rates will go from 4.7% in the first quarter 2014 to 5.1% by the end of the year, and continuing a slow rise to 5.3% by the end of 2015.

Conversely, economists at international macro-economic research firm Capital Economics say they don’t expect interest rates to rise and that the Fed will keep a tight, tight leash on rates through 2014.

“The world economy has entered 2014 with a lot more momentum than it had a year ago. Business and consumer confidence have improved and unemployment is falling rapidly in several countries. However, while this should eventually prompt central bankers to raise interest rates, we do not expect significant hikes this year,” the firm states in its Global Central Bank Watch report. “Instead, the Fed and Bank of England are likely to leave rates unchanged even after unemployment falls below their current thresholds, while both the ECB and the Bank of Japan look set to announce additional policy stimulus.”

“The acceleration in growth over the past twelve months or so has been particularly strong in advanced economies In principle, this should pave the way for policy- makers to raise official rates from their current exceptionally low levels, particularly given that some central banks – notably the Fed and Bank of England – have explicitly linked future hikes to progress in reducing unemployment,” the Capital Economics report states. “In practice, though, the four major central banks in advanced economies are likely to continue to tread very carefully in withdrawing stimulus, let alone actually tightening policy.”

One big concern outside the housing and mortgage universe is that if interest rates rise too high, it could essentially bankrupt the U.S. treasury. The Fed is now printing 29 cents for every dollar the U.S. government spends, and servicing the national $17.3 trillion debt is costly even with low interest rates.

A study last fall by the bipartisan Committee for a Responsible Federal Budget said total interest payments on the federal debt in 2013 were approximately $255 billion. That’s based on the Treasury paying 0.01% on three-month bills and 2.98% on 10-year notes, as opposed to the historical average of 3.3% and 5.2 % respectively.

Frantantoni said typically the Fed has made it clear to the Treasury that it will focus on price stability rather than financing the debt, although he acknowledges there is a concern that interest payments on outstanding federal debt could be an issue. Economic growth concurrent with rising interest rates would serve to ameliorate these concerns through increased tax revenues and stronger job growth.

“We’ve had a couple of unusual years, and a lot of folks in the Fed would like to get back to the role of just minding monetary policy,” he said

Adjustable-rate mortgages regain popularity as prices, rates rise

In November, 11.2% of homes bought with loans carried adjustable-rate mortgages. That’s double the rate of a year earlier.,0,3920478.story#ixzz2pdzftc25

Adjustable-rate mortgages are regaining popularityWith interest rates expected to rise this year, the number of ARMs used to finance purchases could increase further. (Patrick T. Fallon / Bloomberg)
By Andrew KhouriJanuary 1, 2014, LA Times

When Michael Shuken recently bought his family’s first home, a four-bedroom in Mar Vista, his adjustable-rate mortgage helped them stay on the pricey Westside.

For now, his interest-only loan costs him about 35% less per month than a 30-year fixed mortgage, he said. But he’ll have a much bigger monthly bill in 10 years, when the loan terms require him to start paying off principal at potentially high rates.

“What is going to happen if I can’t restructure my loan and extend it? Are interest rates going to be 7%, 8%?” the 43-year-old commercial real estate broker said. “The home is big enough for me to grow into. The question is, will I be able to?”

Adjustable-rate mortgages, which all but vanished during the housing bust, are again gaining popularity. Home prices and interest rates rose last year, and adjustable mortgages can help keep the monthly payment affordable — at least temporarily. Such mortgages offer a lower initial rate, but that rate can rise over time with market changes.

More homeowners in Southern California were willing to take that risk last year. In November, 11.2% of homes bought with loans carried adjustable-rate mortgages, or ARMs. That’s double the rate of the same month a year earlier, according to San Diego-based research firm DataQuick.

“You saw a big swing in people taking adjustable versus fixed rates” when prices and rates shot up last year, said John Ciolino, a senior loan consultant with Luther Burbank Mortgage.

With interest rates expected to rise this year, the proportion of ARMs could increase further.

“Generally, as rates increase ARMs become more popular,” said Guy D. Cecala, publisher of Inside Mortgage Finance.

Last week, lenders offered, on average, a 3% interest rate for a 5/1-year ARM — which means a borrower receives that rate for five years, before the loan starts to adjust annually with the market. That’s compared with 4.48% for a 30-year fixed loan, according to mortgage giant Freddie Mac.

Mortgage brokers say borrowers who plan to move after a few years, or those with considerable, but irregular, income could be well-suited for an ARM.

“A big percentage of my clients are freelance employees in entertainment,” Ciolino said. “So they are going job to job, and they are concerned with having a higher mortgage payment.”

ARMs have been most popular in the region’s higher-priced communities, such as Newport Beach, La Jolla and Pacific Palisades.

That’s a contrast to last decade’s housing bubble, when lenders flooded working-class communities with extremely risky mortgages. One such product — known as the option ARM — allowed borrowers to pay even less than the interest owed, swelling the size of the loan as unpaid interest was added on to principal.

In the first three quarters of 2006, the 16 ZIP Codes with the most ARMs were all in relatively affordable, working-class communities in the Antelope Valley and Inland Empire, according to DataQuick. Many borrowers bet home prices would continue to rise, allowing them to easily refinance or sell before the first adjustment. Many got burned when home prices plummeted, preventing any refinancing.

It’s unclear whether such thinking has changed, but the loans have. The crash stung lenders as well, making them skittish about offering the riskiest products.

Largely gone are option ARMs and loans with very low “teaser” rates that quickly exploded into payments that borrowers couldn’t afford. Lenders during the bubble years also qualified borrowers based on teaser rates, increasing the likelihood of default.

“The ARM products that remain in the marketplace today … are really venerable, long-dated products,” the most popular of which is the 5/1-year ARM, said Keith T. Gumbinger, vice president of financial publisher

New federal regulations taking effect this month should further curtail some of the riskier ARMs, including interest-only products and those with balloon payments.

Adjustable-rate loans may work for some buyers, such as a family in which one parent will return to work after staying home with the kids, said Gary Kalman, an executive vice president with the Center for Responsible Lending.

“I don’t think the product, in and of itself, is inherently a bad product,” he said.

Of course, rates could adjust downward in favorable market conditions. But ARMs are still riskier than fixed-rate loans — especially when rates remain at historical lows but are expected to rise.

Shuken, the Mar Vista borrower, says he understands the risks. He plans to pay down some principal before such payments are required, he said. And he’ll start planning years before the interest rate adjusts to either restructure the loan or sell the house.

“If people aren’t thinking about that,” he said, “they need to.”