Are Foreclosures on the Rise?
Alarm bells are ringing loudly on Wall Street amid rising late payments and delinquencies on subprime home mortgages across the country. The spike in foreclosures is delivering substantial losses to some home mortgage lenders, shaking investor confidence in the subprime loan market and possibly even prime home loan industry. A slumping housing market and the threat of higher mortgage payments are also raising fears that more homeowners will find themselves unable to service their mortgages or sell their homes, threatening mortgage lenders with further foreclosures and saddling homeowners with ruined credit ratings that cripple their ability to access loans in the future.
All these worrisome trends are adding to concerns that an increase in home mortgage foreclosures could interact with other (sometimes related) macro-economic trends to further harm the broader U.S. economy, reducing the growth in incomes and job opportunities. Yet at the same time, a sad crisis is quietly unfolding for a number of families in neighborhoods across the country.
The number of homeowners who entered into some stage of foreclosure in December 2006 was up 35 percent from December 2005 after a slight decrease in foreclosures in the late summer and fall of 2006. At the same time, states all around the country are reporting an increase in foreclosures, with some states reporting as much as a 700 percent increase in 2006 over 2005.
Why is the rate on foreclosures skyrocketing? Many people believe it is due to the housing boom. Practically anyone could purchase a home at a lower interest rate, but interest rates are higher and according to the type of loan you purchased you could be seeing this increase.
During the housing boom, most people did not look at the long term consequences on the type of mortgage loan they were applying for, they only wanted the home of their dreams. Several of these people are in trouble today because their mortgage loan is a high-risk loan such as no down payment and interest only, plus the amount owed on the loan is greater than the home equity.
