Study expects another 1.1 million foreclosures as adjustable rates rise

The $2.2 trillion in adjustable mortgage rate loans issued from 2004 through 2006 will lead, according to a study from First American CoreLogic, which analyzes mortgage risk for the financial services industry, to another 1.1 million mortgage foreclosures as the loan rates rise.

And that may be the good news; as noted in another D4D post, an earlier study predicted 1.5 million foreclosures. But it may also be the bad news; this study doesn't find the problem to be limited to the subprime market.

Excerpts from the story on the prediction of 1.1 million foreclosures:

Recent home buyers, many seduced by too-low-to-last teaser loan rates, are finding that all good things must end. For more than a million, they could end in foreclosure, according to a study released Monday.

Americans borrowed $2.2 trillion from 2004 through 2006 in the form of adjustable loans, which start with low monthly payments that reset to higher rates. As those loans reset, 1.11 million people will lose their homes, according the study by First American CoreLogic, a firm that tracks mortgage risk for the financial services industry.

The figure is significantly less than a widely published number from the Center for Responsible Lending.

As prices appreciated rapidly, buyers turned to adjustable-rate loans that made it easier to afford high-priced homes, at least initially. But a slowdown in the housing market means that buyers who took out the loans as the boom was coming to an end made little or no money off their investments. It's those borrowers who are most likely to wind up in default because they won't be able refinance or sell their homes at a profit to cope with higher monthly payments, the report found.

Unlike a lot of other research about mortgage risk that has roiled Wall Street during the past couple of weeks, the First American report didn't find the problems with risky loans to be limited to subprime borrowers, or people with poor or little credit.

The largest group of loans likely to go into default are those that started with extremely low teaser rates regardless of whether borrowers had high or low credit scores, the report finds.

"This isn't just subprime," said Christopher Thornberg, an economist with the consulting firm Beacon Economics in Los Angeles. "This problem is starting to occur in most of the adjustable- rate mortgages. Even for prime borrowers, we're seeing a big spike in delinquencies among adjustable-rate mortgages."