There are so many factors leading to foreclosure, such as rising unemployment and decreasing property values. These factors feed on themselves.
Plunging prices have had even more impact on investors than on homeowners because investors have less emotional attachment to a house. They’re even more likely to walk away, especially if they’ve put little money into a property.
Investors purchased one of every five homes last year, and almost one of every three when the market peaked in 2005, according to the Realtors trade group.
They flocked to hot markets like California, Florida, Nevada and Arizona, as television shows such as A&E’s popular reality series “Flip This House” touted the easy money that could be made buying and selling homes.
They took advantage of risky loan products that didn’t require down payments or proof of income. Other loans allowed the borrower to pay only the interest on the loan, or even less, and none of the principal for a certain time.
Now, more than 30 percent of properties in the foreclosure process are owned by someone with a different address, indicating the home is likely owned by an investor, according to foreclosure listing service RealtyTrac Inc.
Government programs to help homeowners are specifically designed not to help such investors, though in reality it may be hard to weed them out.
_ Complex investments:
Traditionally, lenders evaluated borrowers carefully because they held onto the mortgages for the life of the loan. That process started to change in the late 1980s, as Wall Street found new ways to package the loans into securities to sell to investors.
Investors were attracted to these new mortgage-backed securities because they paid better returns than government bonds.
At the beginning of this decade, the Federal Reserve started cutting interest rates to historic lows. So investors poured money into the U.S. mortgage market, particularly into securities made up of high-interest mortgages made to borrowers with poor credit records.
The high-interest, risky mortgages, called “subprime,” boomed, from $160 billion in new loans in 2001 to more than $600 billion in both 2005 and 2006, according to Inside Mortgage Finance, a trade publication.