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Rising Debt Could Lead to Foreclosures in the Future

Because of the increasing debt burden of American households, residential foreclosure rates could increase in the near future, according to speakers at a conference here. Panelists at a Center for American Progress meeting said that for the first time ever U.S. families have outstanding debt levels that exceed their incomes.

Christian Weller, a senior economist for CAP, noted that household debt includes first liens, home-equity lines of credit and credit card payments.

Mr. Weller said the cost for such middle-class expenses as housing, health care, education and transportation have risen faster than prices in general. As a result, he said, households increasingly are going into debt to pay "necessities" such as their mortgage.

Mark Zandi, chief economist for Moody's Economy.com, noted that lower-income families are generally new homeowners. Mr. Zandi fears that credit problems "will intensify in the long run for lower-middle-income households."

He said the response should be to not limit credit to this group but to focus on financial education.

Elizabeth Warren, a law professor at Harvard, believes that legislation passed since the 1980s favors lenders over consumers.

Congress has allowed the credit industry to rewrite the rules of issuing credit to families, she said, noting that credit card companies have gotten away with charging whatever they can get and to "bury the tricks" through their credit agreements.

Even home mortgage lenders are following suit, she said, by making "one-sided" loans to consumers. Middle-class families are spending 76% more on mortgages since the 1970s, she said. "We have a big burst of mortgage foreclosures coming our way," predicted Ms. Warren.

CAP bills itself as a nonpartisan research and educational institute. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com