ARMs aren’t the only reason homeowners bail on loans

If the government really wants to stop home foreclosures from surging, here’s a simple plan: Boost Americans’ income, put more funding toward medical research and insist on marriage counseling for all. And then start buying up land to raise housing prices. As far-fetched as all that may sound, such efforts would do more to curb default rates than the Bush administration’s plan to freeze adjustable mortgage rates in the coming years for a limited number of subprime borrowers.

Data from Countrywide Financial Corp., the nation’s largest mortgage lender, backs up this point. The No. 1 reason its customers have been defaulting on mortgage loans is because their income was cut. That accounted for almost 60 percent of its loan defaults in the first 10 months of this year; add in sickness and divorce and the total jumps to more than 80 percent. Way down on the causes-for-foreclosures list at Countrywide—just under 2 percent—is a payment adjustment.

In other words, there’s little evidence so far that the mortgage mess is a product of cash-strapped home owners being crushed by resets on adjustable-rate mortgages, or ARMs, that send their monthly payment soaring. That could change as ARM rate resets pick up speed in the months ahead. Bank of America estimates that will peak next year, with $361 billion subprime ARMs shooting higher, and $148 billion will reset in 2009.

Still, the Countrywide data give a clear view of what may really be pushing some homeowners over the edge. That undermines the notion that the government’s biggest move yet to deal with the credit and housing crisis will have a dramatic impact—or lessen the chances that the economy will fall into a recession just as the presidential election year begins. The “Hope Now” program unveiled by President Bush and U.S.