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Rising foreclosures in the United States: a perfect storm

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  • Kelly D. Edmiston
  • Roger Zalneraitis

Abstract

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, vol. 92(Q IV), pages 115-145.
  • Handle: RePEc:fip:fedker:y:2007:i:qiv:p:115-145:n:v.92no.4
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    References listed on IDEAS

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    Cited by:

    1. Beryl Y Chang & Caroline E. W. Glackin, 2012. "The Mortgage Foreclosure Rage: A Behavioral Perspective," Journal of Economics and Behavioral Studies, AMH International, vol. 4(11), pages 635-648.
    2. Luci Ellis, 2008. "How many in negative equity? The role of mortgage contract characteristics," BIS Quarterly Review, Bank for International Settlements, December.
    3. 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.
    4. 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.
    5. 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.
    6. Maria Akers & Jason Henderson, 2009. "Recession catches rural America," Economic Review, Federal Reserve Bank of Kansas City, vol. 94(Q I), pages 65-87.
    7. Allen C. Goodman & Brent C. Smith, 2010. "Housing default: theory works and so does policy," Working Paper 10-10, Federal Reserve Bank of Richmond.
    8. Choi, Jin W., 2012. "The Effectiveness of the Small Business Lending Fund (SBLF) Program During the 2007–2010 Financial Crisis," The Journal of Economic Asymmetries, Elsevier, vol. 9(2), pages 59-76.
    9. 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.
    10. Jason Henderson, 2010. "Will the rural economy rebound in 2010?," Economic Review, Federal Reserve Bank of Kansas City, vol. 95(Q I), pages 95-119.

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