Experts warn that the nationwide foreclosure crisis may be far from over. The U.S. housing market may be in for more hard times as the stalled economy forces more people into foreclosure and considering Chapter 13.
In the past, the foreclosure buzzword was subprime. Many people who would not have been able to buy homes otherwise were able to get subprime mortgage loans with relaxed - almost non-existent - credit standards. When those people bought homes that they could not afford or their adjustable rate mortgages reset and caused their payments to skyrocket, the nationwide wave of foreclosures began.
The poor state of the American economy has not helped anyone out either. While some subprime borrowers have struggled to keep their homes they have also been faced with skyrocketing prices of fuel and food, job layoffs and an increasingly tight credit market. These problems have spawned other financial issues for many people who have fallen prey to unmanageable debts at payday lending and cash advance stores.
So for the subprime borrower, who did not have great credit to begin with, things have gotten steadily worse. However, the new catch phrase regarding mortgage foreclosures may be middle-class.
The Financial Post reported that the foreclosure epidemic is now spreading into prime borrowers. Homeowners who were previously extremely creditworthy are now facing foreclosure in record numbers.
The foreclosure problem for the middle class is not limited to those who speculated and bought several homes with little or no money down in hopes of flipping them for a profit. Plenty of those homes are also in foreclosure, but the real problem is that many owner-occupied homes are also being repossessed by banks because their middle-class owners can no longer afford the mortgage payments.
America's middle class has been hit hard by the same economic issues as the subprime borrowers. Increased costs for essential things like food and gas, coupled with mass layoffs and a poor nationwide economy overall have driven many middle-class homeowners to file bankruptcy when faced with foreclosure.
Experts say that the middle-class foreclosure crisis is bound to put a downward pressure on home prices. In major markets across the United States, home prices have already dropped 20 percent off the 2006 peak. Some predict that prices could drop much more before they bottom out.
Falling home prices may be good news to potential home buyers with stellar credit ratings. As the cost of homes drop, properties that were previously unaffordable suddenly become easily within reach.
However, for home owners wishing to sell or those facing foreclosure, the drop in home prices only serves to make things harder. Currently one in six homeowners in the United States is upside down in their mortgage. That means they already owe more than the home is worth. As home prices sink, so does any hope of selling or refinancing.
The continued decline in home prices also puts more and more homeowners upside down in their loans. Even those who may not be facing foreclosure yet, now find that they have no equity left in their homes and no financial safety net. The investment in their homes is now lost.