Bank Foreclosures on Homes - The Consumer Death Trap

Pity the poor American consumer. The debt noose tightens to the point of financial asphyxiation, the inevitable conclusion to years of excessive borrowing. While this site is primarily about credit card debt, in the end all personal debt ends up in one bowl, which is set out on the debtor's dinner table every day, with a spoon for the overburdened consumer to stir as they contemplate their future misery.

The main ingredients in this debt soup are credit cards, medical bills, car loans and, biggest of all, mortgages. Credit card debt has been rising inexorably for years, and medical bills rise at 3 times the rate of incomes. But it is the rate of bank foreclosures which looks like being the main force behind the financial demise of so many consumers.

As interests edge up, along with them go monthly mortgage payments. The borrowers may have been lured by a discounted interest rate for a year or two; they may even have had fixed rates over the same period. But, unless they have succeeded in obtaining a mortgage with a truly fixed rate for 25 years or more, the mortgage repayment chicken will soon come home to roost, landing with a deadly dose of bird flu that will lead to the death of the home ownership dream for millions of Americans.

Bank foreclosures in the US have risen strongly recently, and it is very possible worse is to come. Such foreclosures have increased dramatically in a number of states since last year, but over the coming 2 years interest rates are due to be reset, upwards of course. One estimate from Rick Sharga of RealtyTrac puts the mortgage level to have interest rates reset in the next 15 months at over $1 trillion. He forecasts as many as 1.3 million foreclosures in 2007.

The resultant misery, of course, will go way beyond foreclosures. When a bank forecloses, those home owners are at the end of the road. There will be many millions more on the same road, traveling towards the buffers with overdue payments not just on their mortgages, but credit cards, bank loans and those medical bills too.

An excellent article, Foreclosure USA, on the hard pressed American consumer, can be found at Market Oracle.