So many families are finding themselves in a tough situation.  They purchased a home with an ARM mortgage that either has or is about to readjust. Refi went out the window for a lot of them when they lost equity in their home due to the housing slump AND mortgage lenders tightened their requirements (making self employed individuals have the toughest time obtaining financing) When it does, the payments will become unaffordable.  There are a few options. You can just allow your home to foreclose (not recommended), You can short sale if your willing to let go of any money you either put down or put INTO the home.  But, here's an option you can try to excercise and perhaps with a little persistance it might just work.

The first thing you need to do is contact the bank or the mortgage servicer which holds your loan,or is in contact with those that hold your note.  Tell them the impending situation.  They most likely will give you the answer that they won't talk to you till you are already in arears.. usually 60 to 90 days. Do not accept this answer and INSIST that you apply for their assistance programs.  They will then ask you to send them information about income and expenses and if you are self employed, they will ask you for a profit/loss.  Give them all the information that is neccesary. Always be courteous but insistant that your information get to a supervisor or someone in charge.  The servicer has guidlines to follow and steps set forth by each holder they service for certain situations. Most likely the holder has not drawn up procedures yet on how to deal with an ARM mortgage that is in this new situation. That's okay.. insist that the information that you have provided AND the explanation of your situation go to someone who can pick up the phone and talk to the person/company/ investment group that holds your note.  Tell them that you are trying to be proactive, that you want to STAY in your home and want to re-negotiate terms that will be acceptable to the note holders AND affordable to you. Follow up all phone conversatinos with either a fax or e-mail outlining the request you made over the phone to have your case heard by a supervisor.

The solution most offer when you fall behind on payments just does not and will not work in a situation of a readjusting arm. Their solution usually means taking the payments you are behind on and spreading them out over a certain period of time and adding that amount to your monthly payments moving forward.  Which, if your monthly payment were affordable to you in the first place after the adjustment, you wouldn't be behind.  Those payment options usually only work for a family that could otherwise afford their payments but have had a recent illness  or tradgedy that caused them to fall behind, but when things are back to normal they can catch up.  With an ARM lenders need to re-adjust their thinking and figure out ways to work with you.

Another thing you can do is put your request for assistance in writing to the Banking Board in your state, outlining the problem and that you would like the bank to help you work out a resolution. They will forward your letter on their letterhead along with one of their own to the servicer, just to give it some extra umph!

Good luck and hang in there.. if you are in this mess just know that this too shall pass.