It is no surprise that mortgage rates have dramatically increased over the past year . In July 2022 , 30year fixed rates for both conforming and highbalance loans had reached 5.375 %, according to sources such as Guaranteed Rate . This is up from the low 2 % range in early 2021 . Obviously , such an increase in rates can have a dramatic effect on house prices as wouldbe buyers try to buy a house they can afford .
However , the rise in interest rates goes far beyond just what buyers can afford for a new purchase . First , adjustablerate mortgages will climb dramatically , which will impact homeowners trying to make sure they keep up with their mortgages by not going into default . Next , the whole reason the Fed increased rates was to stave off even more inflation than the country had been experiencing since the change in presidency . Here is where we might see a rise in nonperforming loans [ NPLs ], as homeowners fight to keep up with inflation as well as rising interest rates that impact mortgages and other
borrowings [ credit cards , auto loans , etc .].
During The Great Recession , the U . S . saw a huge wave of defaults with mortgages ; primarily , this was due to a credit bubble , as lenders were too eager to make loans . Very little oversight was seen regarding these loans , and borrowers who should not have been granted loans still qualified . Fast forward 15 years , real
estate prices have increased substantially to overcome the devastation of the previous drop . Banks , thanks to Dodd Frank , are now only allowed to make loans to borrowers who can demonstrate an ability to repay . All of this makes for a strong real estate market , and we should not experience the wave of foreclosures we previously saw ; however , that does not mean we will not see them . As noted above , when there is a spike in interest rates [ and inflation ] as we have recently experienced [ and potentially more increases to come ], homeowners can get behind in their mortgages , and without the government moratoriums that were in place during Covid , banks will have to start foreclosing , or sell off mortgages to keep within Federal guidelines of Reserve Requirements . The banks may try and work modifications or other remedies to assist homeowners , but there are times when there is not much the bank can do except file notices of default and start the foreclosure proceedings .
One major difference in today ’ s real estate world as compared to The Great Recession is that , today , many homeowners have ample equity in their houses . This gives the homeowner the possibility of preserving some equity by selling their house rather than get foreclosed on . However , many homeowners around the country , mostly in the lower end market , will still lose their house in foreclosure . One reason is that the homeowner has not researched the value of their house ; they just assume that if they cannot pay , they lose the house . Another is that some homeowners are headstrong about staying in their house and trying to fight a legal battle only to be on the wrong end and , by that time , it is too late to try and save their equity . These situations are unfortunate , as , even when the lender points these things out , many borrowers stick their head in the sand and let the chips fall where they may .
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