4 Causes of an Increasing Residential Mortgage Delinquency Rate

The mortgage delinquency rate skyrocketed in the late 2000s, leading to an unprecedented number of short sales and foreclosures in what had been a very stable market. It seemed as if the entire housing market turned on its head almost immediately, and tens of thousands of Americans watched as their goal of debt-free home ownership fell to the ground. The cause for this meltdown, like most financial crises, was not singular. There were a number of factors that lead to the complete breakdown of the housing economy.

#1 Real Estate Bubbles

The first factor to consider is the actual cost of housing. In the late 1980s through the early 2000s, prices for real estate and homes seemed to know no ceiling. This was especially true in some of the hardest-hit areas such as Florida, Nevada, Arizona and California. Speculation in the real estate market drove prices up, but they could not stay there forever. When home values began to fall, many borrowers found themselves in upside-down loan situations. They owed more on their homes than they were worth on the market. They could not sell their homes or move without sustaining large losses.

#2 Predatory Lending

At the same time that individuals began feeling trapped in their homes, a number of them suddenly saw their mortgage rates skyrocket. Slowly, investigations into lending practices uncovered the fact that a number of lenders, even those considered respectable for decades, were issuing sub-prime or low-interest loans to borrowers who did not qualify for the mortgage limits they were receiving. When the market began to turn, these lenders had to raise rates, and those with variable rate loans suffered the most. These borrowers were not on the high end of the real estate market; instead, the variable rate loans targeted middle- to low-income families with fewer options.

#3 High Unemployment

Affording a high mortgage payment is difficult with a moderate income, but it is even more challenging with no income at all. These same borrowers who were already in desperate situations with their home loans fell victim to layoffs when the economy dipped into recession in 2008. At this point, the borrowers began missing payments on their homes. Selling was not an option because they owed too much on the loan. Instead, the homeowners began slipping further into delinquency until default was just around the corner.

#4 Lack of Assistance

Homeowners looked to refinance their loans to fixed-rate options, attempting to stay in their properties. At this point, it became evident that they should never have qualified for the home loans in the first place and that refinancing would not be that simple. The federal government could not help all borrowers. Instead, assistance was offered only to those borrowers who could afford the loans if a lower rate was offered. Individuals with low to no income who could not afford payments on the home, regardless of rate, did not qualify for the assistance. These borrowers were caught in the worst real estate market crash ever recorded, and their homes fell victim to the foreclosure crisis.