2 Million Foreclosures Expected through 2009

In an article on HousingPredictor.com, researchers predict that as many as 2 million US homeowners will lose their homes to foreclosure over the next 2 to 3 years. This foreclosure crisis will be the largest the nation has seen in almost 20 years, since the savings and loan debacle of 1989. 

As of April in this year, mortgage defaults were at 10 year highs. Where there are defaults, there are foreclosures to follow.

According to the analysis done by HousingPredictor on existing public records, foreclosures are already at record levels in Michigan, Minnesota, Ohio, Nevada and Colorado. Foreclosures are on the rise in California, Alabama, Louisiana, Mississippi, Massachusetts, and Indiana. While other regional housing markets are not showing any signs of strain yet, there is every indication that the financial problems could spread, as the sub-prime lending fiasco impacts the nation's conventional lending market

How do the numbers work out? Well, over 75% of foreclosures are the result of subprime mortgages where the borrower is simply in over his or her head. Higher interest rates are killing these borrowers. Even small increases in the interest rate may be taking them to a payment level that they cannot sustain. Approximately another 15% of problem loans were conventional mortgages, made with low or no down payment. Presumably, as the prices of homes have fallen, it was better to walk away from a bad deal than hang in there and keep paying. The remainder of the foreclosures were made through "no doc" loans, which have also been called "liar loans". Originally, these loans were developed to help the self-employed, but the practice spread beyond this limited clientele when mortgage underwriting was liberalized in the hot housing market.

As the impact of this large number of foreclosures moves through the US economy, we should all be ready for things to get worse before they get better. As someone who bought just after the 1989 savings and loan problems, I can say with assurance: it took a long time for the property I bought in 1990 to come back up in value. In fact, the fallout continued for at least 7-8 years before the bottom of the market was reached, and things started to get better.

Still want to get into the market? Consider a property in Canada. Their real estate markets are still humming along; there's no sign of a foreclosure problem or lending issues there.

Michael Chantrel 


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