The Center for Responsible Lending released a report that predicted that “nearly a fifth of consumers who borrowed money to buy a house in the past two years will default on their mortages and lose their home.”    The CRL is a nonprofit research organization that specifically and aggressively combats what it refers to as “predatory lending practices” that are becoming more and more prevalent with the current sluggish housing market and the relaxed landing standards.

This prediction seems validated with the announcement last week by the Mortgage Bankers Association report that delinquency rates for mortgage loans are up again in the third quarter. 

So, what is a person to do.  Well, first of all, be very aware of the various loan options and why they are structured the way they are.  If you have bruised credit, consider holding off on the purchase and repairing the damage so that you don’t have to settle for subprime lending options that set you up to become one of the statistics.  Some will argue that renting while trying to repair credit is the equivalent of throwing money down the drain.  But really, if you accept a bad mortgage situation and ultimately end up losing your home — is it really any better? 

As the new year begins, we are welcomed by a real estate market that is going to get tougher and tougher.  Interest rates are on the rise, not just in the United States but globally.  And, just this past Thursday, Susan Bies, noted that it was underwriting practices of lenders that were leading to rises in the number of late mortgage payments.  The risk, she noted, was their fault and they needed to crack down. 

Specifically Bies noted that there was too many instances of lenders combining nontraditional loans (remember the interest only loans I mentioned a week or so ago?!?) and utilizing a “risk layering” practice that put the borrower at risk if the interest rates rose. 

For the borrowers like you and I, it is very important to remember that the more sluggish the housing market is, the more we are at risk.  As the market continues to sink buyers can expect higher risks in the long run and a tougher time obtaining financing in the near future.  This is truly a time when the term “Let the buyer beware” is applicable. 

If you are thinking of purchasing a property this year, you may be concerned about what the market trends are anticipated to be.  I know I am.  So, here is the research I have done.  Throughout the years 2000-2005, at least in the United States, the loan market from extremely good.  As a result of actions taken by the Federal Reserve to revive and stimulate the economy, the borrowing rates for banks hit all time lows.  This of course, had the correct effect, banks borrow money from the reserve bank at next to nothing in fees, and they subsequently reduce the interest rates available to their buyers.  Simple enough. 

In 2006, however, the rates are adjusted slightly and the market starts to slow down and interest rates start to move upward.  So now, here it is year 2007 and the question always is asked — what can we expect this year? 

Well, it is my belief we can expect that the changes we saw in 2006 will continue throughout much of 2007.  Things are going to stay at the slightly moving upward rates — at least for now.  Which means that those people we may think were extremely lucky to get the near nothing interest rates may not be so lucky after all.  After all, they are literally trapped in a situation where there are no real refinancing options available to them without tacking on a substantial amount to their loan due to the higher interest rates.  (Maybe my stalling was really a good thing — probably not — but it is a comforting thought to think while I watch the interest rates crawl skyward).  On the other hand, as the market continues creep up, the activity continues to slow down and/or remain sluggish.  This will eventually cause alarm and the Federal Reserve Bank will have to do something.  Playing with(and in particularly lowering) the interest rates in our economy is akin to a doctor using electric paddles on a failing heart.  It tends to restart things and gets them going back to normal.  Well, at least as normal as the financial world can be.