The Worst of Home Foreclosures Yet to Come

Foreclosure avalanche triggered by subprime mortgages started in 2007 will peak in 2008, based on the data from Credit Suisse via the IMF. Following chart from Credit Suisse via the IMF shows the heavy subprime resets in 2008. Number of home foreclosures will be down in 2009. However, the worst is still not over yet. Starting from 2010, home foreclosures due to the reset problems with Alt-A and Option Adjustable Rate Mortgage (ARM) loans will show up if there is nothing to be done.

The time frame for the reset of ARM and options will be in the period of 2009 to 2011. Many of the homeowners in the 2009 to 2011 reset periods still have time to refinance if they can. However, due to the problems of housing market and tightening of the lending criteria, I don’t know how many homeowners with ARM and option ARM can get refinanced. If majority of them cannot get refinanced or cannot afford their mortgage payments even if they get refinanced, the problems of home foreclosures will linger for several years. The main problem is that all these Option ARM resets in 2010 and 2011. Because homeowners with option ARMs are selecting the minimum payments, they have negatively amortizing and will owe more than their properties are worthy. This is why the worst has not been coming yet.

I do not know how much impact that Bush's Project Lifeline and the call for interest rate freeze have on stopping foreclosures. I also don't know how much impact Fannie Mae's HomeSaver Advance has on stopping home foreclosures. But, if homeowners are unable to make their monthly mortgage payments even after you freeze the interest rate, put the foreclosure on hold for one more month, or add the unpaid to the mortgage balance, there is no way you can stop the home foreclosures for those homeowners. Let's wait to see and hope for the best!

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