In an ideal world, there would never be a right time for foreclosure. But in a world where some borrowers stop making mortgage payments, and phone calls and mail get no response, the servicer has to do something. The truth is that in many cases, foreclosure is the only option for a lender. And despite a growing emphasis on finding foreclosure alternatives, the foreclosure workload could be poised to rise again.

That's because rising home prices and falling interest rates have helped servicers steer some homeowners clear of danger despite financial hardships. Econ-omists don't expect interest rates to keep falling, nor do they expect home prices to rise as much this year as prices have risen in previous years.

While foreclosure rates have leveled off in recent quarters, a number of trends may portend a higher risk of defaults in the future. Interest-only loans are on the rise, hybrids that are fixed for a period of time and then become adjustable have gained popularity, and leverage ratios have risen as borrowers cash out on equity and stretch traditional ratios to buy more expensive homes.

All of those trends, some of which have been fueled by the refinancing boom and the dramatic rise in home values, suggest that home buyers may be more vulnerable to economic after shocks from death, divorce, disease and downsizing in the future than they have been in the past. As loan-to-value ratios rise, particularly in high cost markets, fewer and fewer borrowers have much stashed away for a rainy day.

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