Is there another wave of Foreclosures around the corner?

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foreclosure_signs If you thought the mortgage crisis was over and belonged back in the years from 2008 to 2011, then think again. There is a warning from economy experts that the housing crisis could be about to return.

The foreclosure crisis started its humble beginnings some eight years ago; it was not prominent at first but the crisis was so large it sent shockwaves around the world. A grand total of over five million homes were seized by mortgage lenders from homeowners who could not keep up payments due to a global wide credit crunch and a financial recession.

The foreclosure rate in 2013 was down to 2.5 per cent, a year later that figure had tumbled to just 1.7 per cent. So one would be forgiven for thinking the crisis is on the way out? The looming crisis has nothing to do with vintage loans but temporary relief measures and legacy issues.
The truth is, the foreclosure crisis never actually ended, it was simply deferred. And later in 2015, this deferral comes to the end of its life, and that’s going to spell hardship for many with a predicted in spike in home seizures from lenders repossessing property.

US-Foreclosure-Starts-2015-2

There are thousands of mortgages which were taken out in the mid-1990s and around the beginning of the century by people just hoping to try and get on the property ladder. The cheapest (and most affordable) option was to get an interest only mortgage: this is where you pay just the interest and nothing off towards the capital. However, when the life of those interest only mortgages expires, the homeowner is expected to pay the full amount of the value of their home in one lump sum.

If you take a fictional homeowner Mr. Bloggs, who purchased his $100,000 home in the summer of 1996 on an interest only mortgage, he would be expected to pay his lender a sum of $100,000 next summer – as the term of his mortgage agreement was 20 years. Now, Mr Bloggs may well be a fictional example, but in the United States today, there are around a million or more homeowners whose financial situation mirrors that of our fictional example.

It is this time bomb that is ticking and will inevitably create a new, fresh housing crisis because the credit crunch and financial recession, which overwhelmed us all from around 2007 through to 2012, halted the spiralling rise in property prices (in most cities at least).

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