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Southern Maine Foreclosure Rates

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Real estate foreclosure rates on sub-prime loans are expected to jump 160% in the Portland-Biddeford region according to a study released by the Center for Responsible Lending.  They project 17.8% of all sub prime loans taken out to buy a home in Maine in 2006 will ultimately enter the foreclosure process.  Nationwide 2.2 million homes whos loans originated in the last 9 years will enter foreclosure, resulting in a loss of wealth greater than 164 billion dollars. 

Who is to blame?  What will be the net result?  Why is it happening?  After the 2001 nationwide recession, interest rates dropped to some of the lowest levels ever seen in our nations history,  lenders thus decided to take on more risk and loan to less creditworthy parties enabling would be home owners to obtain loans.  Unfortunately these loans were at higher rates, generally adjustable and not requiring any equity contribution from the buyer (100% financing) thus enticing  first time homebuyers to get in the game when perhaps they shouldn’t have.  Now as the rates adjust up and with houses that have seen little or negative appreciation, these parties have no equity to refinance and significantly higher payments that one simply can’t afford. 

The net result will be a flooding of inventory onto the Maine real estate market, thus lowering prices further and putting many hard working individuals into the poor house!  The flip side will be for new Maine homebuyers who can obtain solid financing, a plethora of great opportunites will be coming onto the market with extremely motivated sellers.

Who is to blame?  Lenders perhaps who have pushed these loans onto people whom should have had no business getting into these risly endeavors. The subprime loan market has been extremely lucrative for brokers who can charge high up front fees to borrowers and don’t tell the borrow of the implications of the loan 2-5 years down the road. 

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