Housing analysts predict between 1 million and 3 million U.S. homes will be foreclosed upon in 2007. Already a wave of defaults on subprime mortgages held by those with poor credit have caused a crisis in parts of the industry, and some economists believe a recession could result.
Subprime loans allowed many Americans with spotty credit to buy into the housing boom, driving home ownership to nearly 69 percent nationwide in 2006, up from 65.4 percent a decade earlier. But teaser rates that kept interest payments low for two or three years have begun to expire, driving monthly payments through the roof.
Shanna Smith, chief executive of the National Fair Housing Alliance, said lenders often targeted the most vulnerable borrowers for subprime loans, even if they were eligible for loans with lower rates. More often than not, the borrowers had little understanding of mortgages.
"All the predatory lending that has gone on, all of the pushing of exotic loans on people of color, female-headed households, families with children, people with disabilities -- it's all coming home to roost," Smith said.
Once borrowers fall 90 days behind on payments, lenders can start the foreclosure process, which can take up to a year. Owners can try to sell the house, but with prices falling and foreclosed homes flooding the market, borrowers often end up still owing more than they can get for the house.