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Delinquencies and aggressive lenders

The slowing housing market is hurting every aspect of the economy and real estate world.

Homeowners with existing mortgages are feeling the pinch of rising interest rates and are realizing they may not be able to afford the mortgage they took out a few years ago.

The article, “Aggressive mortgage practices are tied to late loan payments,” by Ruth Simon of The Wall Street Journal Online, explains how more and more people are becoming delinquent on their mortgage payments.

Studies have shown that aggressive lending tactics and delinquencies go hand-in-hand, as lenders struggle to make sales they persuade customers into mortgages they really cannot afford.

“Soaring housing prices and aggressive mortgage lending have saddled home buyers with ever greater levels of debt, and early signs are now emerging that more people are unable to keep up with their monthly mortgage payments. Recent studies by several Wall Street firms point to rising delinquency rates on home mortgages that were issued last year, a period when lenders were pushing hard to keep business going as interest rates and home prices were rising.”

The housing market is cooling and interest rates are rising, so many more people are expected to become delinquent during the next few months.

“Mortgage delinquencies historically peak around three years after loans are made, which means some of the more aggressive loans made last year might experience their biggest problems in 2008. However, some borrowers with adjustable-rate mortgages could see problems sooner. Others, who took out exotic mortgages such as interest-only loans and option ARMs that hold down monthly payments in their early years, could run into trouble later, when payments reset. Still, there are early signs that even some of these non-traditional mortgage loans are starting to be squeezed by rising interest rates.”

Many analysts are also saying that the lax lending standards on the part of mortgage companies have caused many people to fall behind on their payments because they really can not afford them, but are led to believe that they can.

Lenders have eased up their standards on who they will lend to, basically just so they can make the commission during these tough times.

“Mortgage lending standards tended to be looser in 2004 and 2005 than in the previous three years, according to surveys done by the Federal Reserve Board. One example: Piggyback loans have become more common, enabling borrowers to use as much as 100% debt to finance a home purchase.”

“And with competition for borrowers increasing and profit margins shrinking, the move toward looser standards is continuing. Roughly 10% of mortgage lenders said they had eased credit standards in the three months ended April, according to a Fed survey released this week. Only one of the 53 banks surveyed reported any tightening of standards.”

We can only hope for the best for those who bit off more than they could chew. If you feel as if you may be falling behind on your mortgage payments, the best thing to do would be to contact your lender to work out a solution.

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