Philip got behind on his mortgage because his employer cut his hours. He and his wife work for the same nursery and earn only minimum wage.
Philip’s loan was fixed for two years at 7.5%. After that it was adjustable with a rate based on the 6-month LIBOR plus a margin of 5.5 points. Although the 6-month LIBOR is currently down below .5%, it has been as high as 7.0% in 2000. The loan had a cap of 13.5%, and the rate could go that high had it not been modified. That is why I say that having an adjustable rate mortgage is itself a hardship, and that is because although it may not be killing you now, it will kill you in the future.
Take a look at the modification agreement between US Bank and Philip. Philip’s rate was lowered to 2.5% for five years, then 3.5% for another year, then 4.5% for another year, and then 4.75% for the balance of the loan. Philip’s arrearage was added to the loan balance.