Foreclosure Rates

Foreclosures have hit the headlines in America as well as right across the globe. The sub-prime was created to cater to those who did not qualify for a prime loan and yet needed a house. Unfortunately both the borrowers and the lenders over reached themselves leading to this unprecedented crisis. It has socio-economic repercussions and has become a hot topic for politicians and elections.

Housing loans were forwarded with certain lollipops. There was little or no down payment. The initial monthly payments consisted of only the interest. The value of the house was falsely to increase loan amount. Borrower’s income was not verified. It was the time of the housing boom. The interest rates were floating – which meant after the honeymoon period it would change. It was a bonanza for loan takers whether for investment or residential purpose.

Unfortunately as soon as the grace period was over more borrowers found that they could not manage increased mortgage rates. Not just thousands – millions of borrowers cutting across socio-economic divide slipped into foreclosure. Mortgage giants began to tighten their belts. Money flow became a trickle while the number of foreclosed houses rose. With no buyers who could avail of mortgages? With more houses flooding the market the inevitable happened. House prices began to fall and fall.

In the 30-year prime mortgage there were no doubts about how much one should pay and how much the other party should get. But when teaser rates and loose mortgage regulations entered the market with a bang the old type was discarded as being an ‘old fogey’. The greedy borrowers moved into palatial residences they could ill afford.

The interest-only clause means that one never comes to pay for the house and thus no equity is built up except when and if the market rises. Thus the extreme volatility of the housing market has been exposed. When borrowers enter into ARM’s or adjustable rate mortgages with no down payments an atmosphere is created when the slightest change in interest rates dramatically impacts housing market. In areas where the localized economy is strong the owners are able to sell the houses at a fair price. But in other pockets of economic depression the foreclosure numbers are high.

The sub-prime interest is higher than the usual one in force. For instance when the average ranges between 5% and 6% the sub-prime may shoot up to 12%. At times it has even touched 20%. Wall Street is being blamed for constantly demanding income. Brokerage is high for high interest loans.

During the first three months of 2007 the highest numbers of foreclosures were recorded since the last 50 years. The borrowers were unable to cope with a 2.43% - a rise of 2% in the first quarter of 2007. For credit worthy borrowers the rise was 0.25% in the prime sector. The rate of two combined loans hit an all time record of 0.58% as against 0.54% last year during the same time.

The foreclosure rate indicates the health of the market. To gauge it click on to ForeclosureRepos.com and feel the pulse.

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