Mortgage Risks Becoming Evident

The mortgage market has cooled, rates have risen and property values has stabilized. What could be a good situation for the mortgage industry has instead turned into a bad omen. Now that the rush for loans has slowed, those with existing loans or worse, multiple loans, now have their hands full with rising costs. As a result, delinquency rates have risen in the first quarter of 2006. Most would think this would turn mortgage industries away from writing exotic mortgages; in actuality most mortgage companies are leaning on their adjustable and flexible loans to promote new business.

As competition gets heavier, banks are left with no choice than to offer less and less expensive loans. This usually means writing a loan under an adjustable rate, which usually offers a low rate in the beginning. The only problem is that, after the initial period, borrowers may not be prepared to make the new, higher payments. With conventional delinquency up to 4.7% and subprime delinquency to over 12%, industry leaders are worried that this cycle may be hard to break.