For the promise of a low monthly mortgage payment, the Americans snapped the expensive real estates. Now, the foreclosures of the real estate property are on the rise. It is due to several factors.
During the hot real estate market (2000 - 2005), the Americans enjoy a low monthly mortgage payment and low mortgage interest rate. Looking at the monthly mortgage payment alone, they snap expensive real estates. Recently, the interest rate increased in a steady state. Thereby, the mortgage payments went too high to handle.
Many homeowners have no choice. They have to sell their home. Eventually, the homes for sale flood the home market. There are too many homes that are not selling. It means the demand is low. Using the law of supply and demand, the homeowners see the home prices go down. So, they have to sell at a lower price too.
Also, the mortgage delinquents for subprime mortgage have risen. Although the subprime mortgage is a small portion about one fifth of the home market, the subprime mortgage proliferated during the hot real estate market. The mortgage delinquents for subprime mortgage are big enough to make an impact. Today, there are $1.3 trillion subprime mortgage which is outstanding.
At that time, the mortgage underwriter standards are relaxed on credit. The Americans enjoyed an easy access to easy credit. Now, the mortgage underwriter standards have tightened. It is hard to get a credit now. By the way, the mortgage underwriter is the one who basically approves or rejects the mortgage application.
The subprime mortgage loans are a mortgage in which the subprime mortgage lenders lend a mortgage to borrower with bad credit score. The FICO credit score ranges from 300 to 850. With a score below 620, the mortgage lenders consider the mortgage as subprime mortgage.
Since the mortgage market melts down, many subprime mortgage lenders went bankrupt. That is why the investors are staying away from subprime mortgage lenders.
Lastly, the home values and homeowner wages remained stable. If the home values appreciate, the home values offset the higher mortgage payment. Unfortunately, the supply is plenty and the demand is low.
Mostly, the foreclosures of home are in the low income neighborhood too. The income of the homeowners fails to increase as much as the higher mortgage payment. It is a stretch to repay mortgage payment.