Massive Loan Adjustments Up Ahead?

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It seems like every tenth house we see in our neighborhood is going up for sale these days, with the “Sale Pending” sign up within a week afterwards. But in reading this month’s issue of Kiplinger’s Personal Finance, I read an opinion that closely reflects my own future predictions (not that I’m Miss Cleo or anything). Economist Mark Zandi describes a scenario that mortgage rates will rise by 1 to 1.5 points of the next year, and that home prices will flatten but not fall. However, due to the large amount of interest-only and adjustable-rate mortgages out there, and “…in 2006 and early 2007, we’ll be in the middle of a massive loan adjustment.” Thus, there will be a high number of foreclosures and delinquencies, with bargains to be found.

It’s a little dark to be hoping to pick up a foreclosure or pre-foreclosure house from somebody else in financial trouble, but people are taking undue risks these days and overextending themselves. The article notes that about “17% of mortgages originated in the second half of 2004 were interest-only.”

In the meantime, I’ll be saving up my money and looking to learn about how to find and approach homeowners in pre-foreclosure status and perhaps get a great deal while helping them avoid a foreclosure. Or find out ways to find and negotiate good foreclosure deals from banks.

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  1. Kind of makes you wonder. If more and more people are resorting to interest only loans to buy houses now, what’s going to happen when the rates go up that extra 1-1.5%. Where will the buyers of these expensive (previously affordable prior to the last couple years) houses come from?

    I’m sure glad I’m locked in at today’s interest rate.


  2. evyrabbit says:

    Do you know a good resource available that lays out the basics of picking up a foreclosure? Most things I come across are overinflated sales pitches.

  3. Sorry evyrabbit, I don’t right now. But when I do, I’ll be sure to post it.

  4. Strategic Investment has an interesting take on this.

    I’m trying to decide whether to subscribe to their newsletter. As far as I can tell, it is reasonably respected. Does anyone have experience with these folks?

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