Foreclosures May Rise as Overburdened Buyer’s Interest Rates Rise

Now that the interest on adjustable-rate mortgages is increasing and housing prices are starting to drop, a lot of people are trapped with payments they can’t afford. When they can’t meet their payments, the only option may be foreclosure. Foreclosure is when the lender legally repossesses the house when the owner can’t make the payments.

Even though a strong economy kept foreclosures down in the first quarter of 2006, there is a concern that that has now changed and we will see many more foreclosures in the future.

While interest rates were really low and the price of houses was on the rise, millions of people in this country chose to refinance their homes to use some of the equity they had built up. Many opted for hybrid ARMs which were being aggressively marketed by lenders because they were easier to qualify for. These start at a low interest rate that increases after a specified period of time.

There are more that $300 billion ARMs that will have the interest rate adjusted this year. By 2007 the number will be more like $1 trillion. As these monthly payments increase, many will be beyond what the homeowner can afford.

The number of delinquencies is taking an upward turn also. Areas that are experiencing tough times because of company strikes, slow business, and bankrupt businesses are showing the highest delinquency rates.

However, the experts expect higher levels of delinquencies in the areas of the country where houses have had the highest appreciation in the past few years.

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