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Number of People Falling into Arrears Increases for First Time since 2009

By Allison Halliday | November 11, 2011

More grim news for the American housing market, as a new report by the credit bureau TransUnion shows the number of people who have fallen into arrears on their mortgages during the last quarter has increased for the first time since 2009. The number of borrowers missing more than 60 days of mortgage repayments increased by 5.88% during the third quarter of this year, which is disappointing news as it comes after six straight quarters of decline.

mortgage defaults

Mortgage arrears are on the rise once more © forestpath -

Apparently mortgage experts have been waiting for this to happen and are well aware that many risky mortgages undertaken during the dying days of the housing boom would come back to haunt the market this year. Now some are forecasting a double dip recession which may not be resolved for the next four years.

According to the report in ABC News, the problem is that some of these sub-prime adjustable interest rate mortgages are now resetting which unfortunately coincides with bad economic news. During the third quarter the US credit rating was downgraded, the European debt crisis increased and unemployment failed to fall which have all negatively affected consumer confidence and placed downward pressure on home values. I'm not surprised

However experts think the real problem lies in the fact that most of these loans should never have been given out in the first place. They point out that by 2007 the number of qualified borrowers was running low, but lenders were motivated to keep on selling mortgages due to the large amounts of money to be made both from fees and bundling mortgages together to sell on to investors. Many of these loans were called pay option adjustable rate mortgages and allowed borrowers to make only minimal payments during the first five years, enabling people to get loans they couldn't really afford to service.

After five years the loan is reset, and interest from the previous five years is added on, leading to a substantial increase in mortgage repayments. Large numbers of these borrowers haven't yet defaulted, but when it happens the foreclosures could go on for the next few years.

Allison Halliday is a Realty Biz News contributing writer. She handles International Real Estate and is a seasoned blogger.
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