Mortgage Foreclosures-Is It The Chicken or The Egg?
And my friends it will only get worse in the short term.
Yes the housing boom is over but the economy is literally booming in most of the country in spite of that sobering fact.
So what gives? There are several factors.
• THE HOUSING BOOM IS OVER.Selling your home was one way to escape foreclosure. That avenue is very congested right now and for many not even viable.
• DROP IN VALUES. Housing values have dropped dramatically in the last 6 months putting many homeowners upside down owing more than the home is worth.
• RELAXED UNDERWRITING CRITERIA. In an effort to stimulate business some loans were made that shouldn't have been.
• HIGHER INTEREST RATES. Rates went up almost 20% in 3 years putting additional pressure on marginal borrowers.
• RESETTING ARM'S. A recent favorite, many ARM's are due to readjust. Couple that with higher rates and it looks like a formula for foreclosure for many.
So the sub prime lending while the housing market was booming, relaxed lending criteria when things slowed down, and rising interest rates have all teamed up to drive foreclosures to an all time high. More foreclosures translate to more inventory which could prolong the recovery.
Just today there was more news of sub prime lenders closing their doors.
The good news is that mortgage rates have stabilized, housing starts are up and the economy is strong. Yet there is a lesson to be learned here-don't bite off more than you can chew.
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