Federal Reserve Warns against High Risk Buyers as Forclosures Increase

Home-mortgage delinquencies and foreclosures are on the increase, especially for people who took out subprime mortgages during the housing boom of 2005. A subprime mortgage is a high-interest loan for those with blemished credit records or low incomes who are considered higher risks. You may have noticed the increased foreclosure notices in the Portsmouth Herald, Union Leader or Foster's lately. Also at risk are the 100% financed loans of buyers who have lost equity now with the softening seacoast home prices. I often warn my Sellers regarding these types of loans on a Buyer's offer to purchase as they are at risk of not appraising by their lender. Heap financed closing costs on top of that, and the home may need to appraise out for the purchase price plus closing costs. Because of the above risks, Federal bank regulators, worried about a surge in defaults on high-risk home mortgages, yesterday called on lenders to exercise caution in making subprime loans and to closely evaluate borrowers' ability to repay them. This will result in fewer borrowers. Tuesday, Freddie Mac, the nation's second-largest financier of home loans, said it would stop buying the subprime mortgages that it considers most vulnerable to default and foreclosures. This comes as no surprise to me as a Realtor. I always felt that that the combination of over-inflated prices and 100% financing was a bad mix. In the mid 1980's I saw prices soar and the foreclosures increase over the next 2 years. Then; it was high interest rates combined with declining values. Now; although the rates are low; the 100% financing of the 2005-early 2006 buyers combined with the decrease in the housing market has resulted in a spike in foreclosures, especially in Rockingham County. In the 1980s we saw more investors and multi-units defaulting. Now, we primarily see single family homes and especially newly constructed homes under default.