Warning Signal: Late Mortgage Payments
Several recent studies by Wall Street firms are finding rising delinquency rates on home mortgages. Experts believe the increase is a result of buyers being stretched financially to afford ever costlier houses, and from increased debt which has led many homeowners to tap into their home equity.
Historically, mortgage delinquencies peak around three years after loans are made, which means some of the more aggressive loans made last year might experience their biggest problems in 2008. However, some borrowers with adjustable-rate mortgages could see problems sooner.
According to a study by Christopher L. Cagan, with First American Real Estate Solutions, borrowers who took out mortgages in the past two years are likely to be more vulnerable should home prices fall because they could wind up owing more than their home is worth. Twenty-nine percent of borrowers who took out mortgages last year have no equity in their homes or owe more than their house in worth.