ARMs Threatening American Dream

Homeowners Drowning In Debt From Adjustable Rate Mortgages

(CBS)  The home at 29 Woodbury Ave in Cape Cod, Mass. went on the auction block this week.

The owner stayed away, but neighbors gathered in disbelief as their friend's home was sold at foreclosure.

"It's kind of a sad situation," one neighbor says. "They're nice neighbors. They've done a lot of work on this house."

Sheila Farragher-Jemma of ForeclosuresMass.com says in the last year the number of foreclosures jumped 105 percent, and she expects many more in the coming months.

"Thousands of people, they're losing their homes on a daily basis," she says. "The home is the American dream, it's the whole foundation of the family. It's a huge deal."

And it's a trend that's happening not just in Massachusetts, but throughout the country, reports CBS News correspondent Trish Regan.

Foreclosures jumped 28 percent nationwide over last year.

Analysts blame adjustable rate mortgages, or ARMs. These mortgages offer low introductory interest rates, but, after a period of time, they're re-calculated. The Federal Reserve has raised interest rates 17 times in two years, causing mortgage payments with ARMS to skyrocket.

Ned Tobey owned the house that was just sold on 29 Woodbury Avenue. "I kept falling behind and falling behind," he says. He financed the $300,000 home with an adjustable rate mortgage, as the rates went up, he found himself unable to afford the payments.

"I went from a monthly payment of right around $2,100 a month to a little over $3,000," Tobey says.

The bank foreclosed, and put the house up for auction. It sold for $317,000.

The bank now owns his home.

Asked what he will do now, Tobey says, "I have faith. We're going to rely on God."

He's also relying on some kindness from neighbors: A friend offered to buy back the house and rent it to him. Tobey says he's hoping to own it again someday, using a different kind of mortgage.