Gloomy Foreclosure Predictions For The Coming YearsGloomy Foreclosure Predictions For The Coming Years

August 13th, 2007 | Tags: Foreclosure

The question looming large over the entire country is that how bad is the sub-prime mortgage malaise? Is it going to crumble and melt down? How deep has it taken roots in the general economy of the nation and what will the range of its consequences? Can it be uprooted before the bitter fruits appear? The answer is brief. Nobody knows. Everybody is groping in the dark. The future does not seem good. The gathering clouds are intensifying and rumbling.

In May this year about 12.4% of those in sub-prime mortgage bracket was lagging behind in instalments. The number is the highest in a decade. Last year it was 6.72%. The number includes those who are failing, those whose properties are already in the vicious grip of the foreclosure process as well as those units that have been recovered by the lenders. This is the opinion of Michael Youngblood of Arlington is one of the top analysts dealing with mortgages and bonds.

Friedman Billings of a Vancouver based company (Ramsey Group Inc) has forecast that by May 2008 the rate would bounce up to 14.6% making the number a record breaker of sorts.

The picture will be clearer if compared with the so-called Alt-A mortgages. The latter comprises of loans made to borrowers with high credit rating. In this zone the failure has been 2.69% in May this year as compared to 0.89% in May 2006. Youngblood is pessimistic that this too will rise to 3.92% by May 2008. In the zone of jumbo size mortgages comprising of loans exceeding $417,000 the rate was 0.37% in May. This was a rise from 0.22%. Youngblood apprehends that here the figure will increase to 0.53% in May 2008.

It is the mortgages with adjustable rates and other flexible features in the sub-prime area that will hike up the number of foreclosures. Loans had been forwarded willy-nilly without taking into account a prime issue. Would the borrower be able to repay in the long run? Borrowers too had been led on by false hopes of owning a fancy house and the immediate bait of low interest-only mode of repayment. Analysts are busy tracking and forecasting the rising curve. Approximately 1.1 million foreclosures will emerge from various re-settlements on all sub-prime adjustable rate mortgage deals made from 2004 and through 2006. This figure has been released in March this year.

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