One of the great legacies of the housing boom of the past six years is that almost everyone – even people with questionable credit – has access to a mortgage.
But now, some housing advocates contend, all that easy credit is on the verge of creating the worst mortgage crisis since the 1980s. The reason: A rising number of homeowners are shouldering mortgages they can no longer afford. For example:
•In 2004, John Silva refinanced the modest home he and his wife own in Willow Springs, N.C. Today, with their mortgage at almost 10 percent, he worries he's just a "hiccup" away from foreclosure.
•Ten months ago, newly divorced Tammy Myers got a no-down-payment loan to buy a house in Denver. The interest rate is now so high it's difficult to make her monthly payment.
•Susie Smith – a retired social worker who's too embarrassed to use her real name – almost lost the house in St. Paul, Minn., she had lived in for most of her life. That was after she refinanced it and her monthly payments more than doubled from $675 to more than $1,400 a month.
Across the nation, foreclosures and defaults are rising as mortgages that were once affordable are now expensive albatrosses as the introductory "teaser rates" that made the loan possible end and higher interest rates kick in. Some housing specialists worry that the mortgage industry – with more than 20 companies already in bankruptcy – will raise its lending standards so high that would-be homeowners with less-than-perfect credit will be frozen out. There is even some concern that the pullback in lending will extend the slump in the nation's housing market.
"It's the most serious threat to the economy," says Mark Zandi of Moody's Economy.com. "It has the potential to set the housing market back another big notch since there could be a whole class of people who can't get credit."
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