With the collapse of housing prices during the last couple of years, foreclosures have maintained record levels and are expected to continue rising. Government intervention has helped to slow the flow of foreclosures in the housing market during the first half of this year, but most of the temporary fixes that were put in place have worn off, and banks are once again working through the foreclosure process with borrowers not making their mortgage payments.

The foreclosures are nothing new. Subprime borrowers-those with bad credit or income levels who were able to get mortgage loans when just about anyone could-have been struggling for some time. Real estate speculators have also been hit hard, especially those who were aggressively buying homes as if real estate values could never go down. When the housing bubble burst, these two groups made up many of the initial casualties.

The next wave of foreclosures will be the ones who were not viewed as credit risks when their loans were issued. These aren’t subprime borrowers. They are homeowners who have historically been very good borrowers. They have good credit scores, stable incomes, and have generally been viewed as low-risk borrowers. The most recent foreclosure data showed that it was this group of borrowers that was seeing the biggest increase in foreclosure activity.

The reasons for this are understandable, as this has been one of the most difficult financial environments in US history. Unemployment is nearing 10% and many people that have kept their jobs have still lost part of their salaries or hours, reducing their income. This is affecting stable borrowers who had the means to weather the storm initially when the housing bubble first burst. The impact of the economy on people’s personal financial situations could mean that foreclosures continue to increase long after the recession is officially over.

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Tags: bad credit, banks, foreclosures, housing market, subprime

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