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Housing Bubble 2.0 upon us

Housing Bubble 2.0 upon us

It’s a sad reality that about half the foreclosures across the country are people falling into mortgage default for a second time. But that’s what happens when the only modification the lenders were offering weren’t loans that really matched the borrowers’ realistic ability to pay. But if you were offered one lifeline, you’d take it – even if it saved you for just a little while.

Many of those homeowners took those lifelines – loan modification that were designed with increases in the interest rates or loans the borrower never could afford – because they had nothing else. Some of those homeowners are falling into trouble again.

At the same time, talk is everywhere about a new housing bubble – call it Housing Bubble 2.0. Predictions are that within the next three years, the Fed finally will allow an increase in what are now historically low interest rates. As interest rates rise, more buyers will be cut out of the market.

While some families have been fortunate enough to lock in a low fixed interest rate, they’ll find themselves stuck without the ability to afford a move, factoring in a higher interest rate, and without the ability to sell as fewer buyers qualify under the higher rates.

In both of those scenarios, families will find themselves locked under water again. It’s predictable that walking away will be easier the second time around as foreclosure becomes less taboo. It’s also predictable that rises in the mortgage interest rates will trigger the next wave of defaults.