In the last few years, many buyers took out interest-only, variable-rate loans, and in some cases put no money down to afford a house, said Frank Nothaft, chief economist with government-chartered mortgage giant Freddie Mac. He estimates one out of every three loans issued in 2005 was an adjustable rate mortgage. Now that we’ve seen 14 consecutive interest-rate increases since June 30, 2004, many of these loan rates are bumping up, increasing the size of mortgage payments.
Nothaft estimates that $500 billion in variable rate mortgages will reset, or rise, sometime this year, leaving many with a payment they can no longer afford. “Those would be the candidates for … delinquent status,” he said.
Foreclosures had been at historic lows in the past three years as rapidly appreciating home prices gave financially strapped owners the option to refinance, sell their house at a profit or take out a cheap home equity line of credit. But with the pace of appreciation slowing in many markets and interest rates rising, for many, these avenues have been cut off.
People have been using their houses as ATMs...this practice is going to come to a screeching halt, as lenders have already tightened their standards and people aren't going to be able to refi their way out of this mess. “You’re really out of options,” said Susan Wachter, professor of real estate at the Wharton School at the University of Pennsylvania.
I didn't forget anything. Beaversmom had a question about the facts of current foreclosure rates compared to years past. I posted the factual portion of the article pertaining to her question. I didn't change the subject to include dire, negative predictions regarding future mortgage defaults in a lame attempt to bury good news.