Family’s Will Suffer, Mortgage Lenders & Investors Will Profit

Robert Reich reported on Marketplace today that home foreclosures were up 42% last year resulting in over a million families losing their homes. Many of these people had signed up for adjustable-rate mortgages or interest-only loans with no down payments and sometimes 100% financing.

Rough Times Ahead
The bad news for families that borrowed with adjustable rate mortgages is that these rates are projected to climb. According to estimates by the Mortgage Bankers Association, this will affect over $500 billion worth of mortgages in 2007. The easy money of the real estate boom years has dried up and people that overextended themselves are going to struggle as rates increase. Reich projected further struggles for families based on a recent report.

“According to a report issued last month by the Center for Responsible Lending, 1-in-5 sub-prime loans made in past two years will end in foreclosure. That’s about 2.2 million borrowers who are likely to lose their homes.”

Lessons Learned
Reich points out that the millions of families are the big losers here. While mortgage lenders and investors may lose money, they’ll still have the properties to resell. The families will be out of a place to live.

What can we learn from this tragic, yet inevitable outcome? Don’t overextend ourselves to pay for anything, let alone the home we live in. Eventually interest rates or the economy will catch up with us and we’ll regret our actions. The second thing to think about is how the increase in foreclosures will affect the availability of discounted housing in the market for investment opportunities.

• Adjustable Rate Mortgages
• Interest Rates & Mortgage Options
• Buying A House: Down Payments and Private Mortgage Insurance
• Split Loans & Home Equity Lines of Credit
• Defaults Rising on Subprime Loans. What did New Century and Everyone Else Expect?