IDEAS home Printed from
   My bibliography  Save this article

Rising foreclosures in the United States: a perfect storm


  • Kelly D. Edmiston
  • Roger Zalneraitis


Residential foreclosures in the United States have been rising very rapidly since 2006. In the second quarter of 2007, the share of outstanding mortgages in some stage of foreclosure stood at 1.4 percent, near historic highs and up from less than 1 percent a year earlier. The number of mortgages entering the foreclosure process reached an all-time high in mid-2007, suggesting that the foreclosure surge is likely to get worse before it gets better. ; The foreclosure surge was created by a perfect storm of events. First, in recent years the share of subprime mortgage originations increased substantially. Second, foreclosure rates for adjustable-rate mortgages (ARMs) have increased considerably, especially for subprime ARMs. This increase is largely due to rising short-term interest rates and to payment resets for many nontraditional mortgages. Finally, high loan-to-value originations in recent years, coupled with stagnant or falling home prices, have left many people with insufficient equity to sell or refinance their homes. ; Edmiston and Zalneraitis provide a detailed dissection of the current foreclosure surge. They conclude with a discussion of why the foreclosure situation is likely to get worse over the next one to two years and why it is likely to improve afterward.

Suggested Citation

  • Kelly D. Edmiston & Roger Zalneraitis, 2007. "Rising foreclosures in the United States: a perfect storm," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 115-145.
  • Handle: RePEc:fip:fedker:y:2007:i:qiv:p:115-145:n:v.92no.4

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Meador, Mark, 1982. "The effects of mortgage laws on home mortgage rates," Journal of Economics and Business, Elsevier, vol. 34(2), pages 143-148.
    2. Clauretie, Terrence M & Herzog, Thomas N, 1990. "The Effect of State Foreclosure Laws on Loan Losses: Evidence from the Mortgage Insurance Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(2), pages 221-233, May.
    3. Paul S. Calem & Kevin Gillen & Susan Wachter, 2004. "The Neighborhood Distribution of Subprime Mortgage Lending," The Journal of Real Estate Finance and Economics, Springer, vol. 29(4), pages 393-410, December.
    4. Brent W. Ambrose & Charles A. Capone, 1998. "Modeling the Conditional Probability of Foreclosure in the Context of Single-Family Mortgage Default Resolutions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(3), pages 391-429.
    5. Kahn, Charles M & Yavas, Abdullah, 1994. "The Economic Role of Foreclosures," The Journal of Real Estate Finance and Economics, Springer, vol. 8(1), pages 35-51, January.
    6. Terrence M. Clauretie, 1987. "The Impact of Interstate Foreclosure Cost Differences and the Value of Mortgages on Default Rates," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(3), pages 152-167.
    7. Quigley, John M & Van Order, Robert, 1995. "Explicit Tests of Contingent Claims Models of Mortgage Default," The Journal of Real Estate Finance and Economics, Springer, vol. 11(2), pages 99-117, September.
    8. Jordan Rappaport, 2007. "A guide to aggregate house price measures," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 41-71.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Luci Ellis, 2008. "How many in negative equity? The role of mortgage contract characteristics," BIS Quarterly Review, Bank for International Settlements, December.
    2. Dan S. Rickman & Mouhcine Guettabi, 2015. "The Great Recession And Nonmetropolitan America," Journal of Regional Science, Wiley Blackwell, vol. 55(1), pages 93-112, January.
    3. Jason Henderson & Maria Akers, 2009. "Recession catches rural America," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 65-87.
    4. Allen C. Goodman & Brent C. Smith, 2010. "Housing default: theory works and so does policy," Working Paper 10-10, Federal Reserve Bank of Richmond.
    5. William H. Rogers & William Winter, 2009. "The Impact of Foreclosures on Neighboring Housing Sales," Journal of Real Estate Research, American Real Estate Society, vol. 31(4), pages 455-480.
    6. Jason Henderson, 2010. "Will the rural economy rebound in 2010?," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 95-119.
    7. Burgard, Sarah A. & Seefeldt, Kristin S. & Zelner, Sarah, 2012. "Housing instability and health: Findings from the Michigan recession and recovery study," Social Science & Medicine, Elsevier, vol. 75(12), pages 2215-2224.
    8. Goodman, Allen C. & Smith, Brent C., 2010. "Residential mortgage default: Theory works and so does policy," Journal of Housing Economics, Elsevier, vol. 19(4), pages 280-294, December.

    More about this item


    Mortgage loans;


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedker:y:2007:i:qiv:p:115-145:n:v.92no.4. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LDayrit). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.