The Next Wave of Foreclosures: Prime Mortgages in 2010
Many real estate and mortgage finance experts now predict that a whole new wave of foreclosures is about to hit. But instead of being fueled by the risky subprime mortgage loans made to consumers with lousy credit that instigated the original mortgage crisis, they say that this next phase of credit turmoil and foreclosures will be due to prime loans – those made to people with excellent credit and higher than average assets and income.
One of the reason this is expected to happen is not because the original loans were too exotic, not carefully scrutinized by underwriters, or that they were pushed on people who could not afford them. But things have changed within the past months and years, and now many people who were in the prime category are now on shaky financial ground. With tens of thousands of layoffs across the country, lots of people who were in great financial shape a year or two ago are now stuck in a situation where they have no income at all – and no way to pay a hefty monthly mortgage bill.
As a result a new breed of foreclosure homeowners – those who are in the upper middle class echelon and who own luxury properties in the nicest neighborhoods – is forming across the USA. Unless the employment picture improves, real estate watchers believe that millions of homes may go into foreclosure within the next year or two, as prime loan borrowers fall on hard times and default on their mortgage obligations. This is a shift in historic terms, because over the past 100 years most people who experienced a foreclosure were from the lower-income set, and their homes were in less desirable locations. But no longer are foreclosures limited to dilapidated houses owned by people who make less than average income. The new foreclosure profile is starting to look like a fancy home in a great neighborhood, owned by someone with a track record of exceptionally good credit and higher income.
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