As we’re nearing the end of the year, there are a few mortgage trends that we should all keep a close eye on. By analyzing some of these trends, current homeowners and potential homebuyers alike may have a better understanding of their local housing markets.

Here are three trends worth considering:

1. Housing Plunge - Predicting That “Bottom”
The L.A. Times had an interesting column earlier this month, and they brought up a disappointing, but realistic possibility. In the column, they pointed out that the majority of our mortgage problems stemmed from toxic mortgages going bad and other non performing loans.  Here in California, home loans were especially toxic since higher median home prices and inflated stated incomes went hand in hand. But, looking back at history, the major cause of housing slumps has typically been “higher interest rates, rising unemployment, salary cuts, depression, and recession.” With the holidays rounding the corner, and consumer confidence still posting dismal numbers, these factors have just started to affect the housing markets.

2. The End of Subprime Era Opens Up Alt-A Vulnerabilities
Mortgage lenders and housing markets have since suffered the blow of the subprime mortgage mess, but the next wave of hurt could come from the Alt-A loans. Some even fear these Alt-A loans more than subprime loans because of how common they were and their dates of origination. Specifically, most 3/1 and 5/1 adjustable rate mortgages peaked around 2005 to 2006. In addition to the regular ARMs was the Option ARM mortgage which often recasts after a period of negative amortization. Given the timeline, these Alt-A mortgages continue to be a potential risk.

3. Modified Mortgages At Risk of Defaulting
Refinancing a mortgage in California has never been tougher. Full documentation and good credit has just been the beginning–the most difficult factor for most homeowners in California has been the issue of falling home prices. As a substitute for refinancing, mortgage modifications have become quite prevalent among many mortgage lenders. However, a recent study by Lender Processing Services showed an alarming number of mortgage modifications simply end up re-defaulting. According to their numbers, about 25% of mortgage modifications default after only one post modification payment, while more than 50% re-default after several post modification payments.

If you’re one of the many looking to pick up a bargain home, be sure to consider these factors as they can easily affect a given area’s housing market stability. For current homeowners, learn from the mistake of so many others and make sure you find a loan that you can really afford.

 For more information, check out our other posts:

- Mortgage Survival Guide, Who’s Left out there?

- California Housing Crisis Lures Investors

- Give Mortgage Lenders Stronger Appraisals

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