The chairman of the Federal Deposit Insurance Corporation warned of an upcoming boom in mortgage foreclosures as interest rates rise, which could spell credit losses for mortgage lenders. Record highs in housing prices have pushed many homebuyers into nontraditional mortgage loans such as option mortgages and interest-only loans. While mortgage interest rates continue to climb, homeowners with these risking types of mortgage loans will see their monthly payments skyrocket. Mortgage foreclosure rates are very low at the moment; however, mortgage lenders are bracing for higher losses. Many lenders are even gearing up their workforces in preparation for the workload.
The housing market in the United States has grown rapidly for the past five years, with home sales and new building setting new records every year. In some parts of the country, home appreciation has risen double digit percentages on an yearly basis.
The government has stated the growth in many cities is unprecedented. Many markets have never experienced a boom like this; the government estimates 40% of cities in the United States have been affected by the housing boom.