Americans continue having difficulties paying their mortgage obligations, with December [tag]foreclosure rate[/tag]s above the 100,000 mark for the fifth straight month. The number of homeowners entering into some stage of the foreclosure process in December was 109,652, down 9 percent from November but up 35 percent from December 2005, according to RealtyTrac. [tag]Adjustable-rate mortgages[/tag], especially [tag]subprime ARMs[/tag], continue to drive the spike in foreclosures: many of those loans are due to reset in 2007, and many of the loans written in 2006 are performing less well than in previous years.

Another contributor is that some lenders tried to maintain business in a slower market. To do that, some relaxed their underwriting standards, approving more marginal borrowers for loans. Interest rates were also higher for the year, putting additional strain on borrowers. Doug Duncan, chief economist for the Mortgage Bankers Association, estimates that $500 billion to $800 billion in loans outstanding went to borrowers who may face difficulties. “Some of that,” Duncan says, “would go into foreclosure.” A sustained increase in the number of foreclosures could accentuate the decline in the housing market, according to Duncan. “It could take longer to work the inventory down,” he says.

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