Foreclosure Crisis to Expand?

By Jason Reece, Senior Researcher at the Kirwan Institute

The news on the foreclosure crisis continues to get worse. Now an estimated 11 million homeowners are “top heavy” and owe more on their homes than they are worth, and an estimated 1 in 10 residential home mortgages are in delinquency or default.

Unfortunately, this concentration of subprime mortgage foreclosures may just be the beginning.

As the volume of subprime loans resetting in the market starts to decline in 2009, a new wave of non-traditional mortgages will begin to reset.

Option adjustable rate loans (or Option ARMS) and Alt A loans (loans with borrowers who were not subprime but did not qualify as prime borrowers) will begin to reset in massive numbers from 2009 to 2011. Given the decline in home values across the nation and the anticipated job losses resulting from the recession, these nontraditional mortgages will be resetting at a very precarious time.

The potential for another wave of foreclosures across the US may sit just beyond our horizon, providing another powerful incentive to create a comprehensive response to the current credit and housing crisis, which will help us avoid the next wave of mortgage defaults. This crisis is particularly concerning because like the first wave, African Americans and people of color are more likely to experience foreclosures and decreasing property values.

For more information on the foreclosure and credit crisis visit the webpage of our recent conference. See particularly our primer on subprime loans, foreclosure and the credit crisis: http://www.kirwaninstitute.org/events/archive/subprime-convening/index.php

And for more information on the recent wave: http://www.cbsnews.com/stories/2008/12/12/60minutes/main4666112.shtml