Although many observers expected the market to higher rates and a slowdown in the housing market would make the furious pace of mortgage loans to a halt, their predictions were not pan out. Higher mortgage rates and a slowdown in the housing market have not yet resulted in significantly higher mortgage bank and the losses that these experts predicted. But what increases in mortgage rates predict crime? This is where the plot is interesting. According to the Mortgage Bankers Association, delinquency rates for mortgages rose a stunning 7% to 4.7% in the fourth quarter of 2005. Most market experts agree that this type of increase in delinquencies, if not, will give lenders a serious case of indigestion.

Despite the higher crime rates and other red flags, mortgage lenders are speeding ahead undaunted. They continue to ignore former Federal Reserve Chairman Greenspan’s warning that the market has become too aggressive. As a group, most mortgage lenders seem unfazed by the idea that borrowers are taking on too much debt, which loan to value ratios are too high and that many loans are being carried out with little documentation.

Both banks and consumers seem to be stretching. In California, lenders have allowed more than 20% of a house to pay more than half its pre-tax income for housing. HUD recommends that buyers pay less than 30%. Compounding the situation is that a large number are high risk, whether or variable interest rate only for mortgages.

A growing concern the Fed is the sub-prime mortgage market. Lenders in this market respond to borrowers with sub-par credit profiles. Sub-Prime loans now represent approximately 23% of new mortgages compared with only 5% to the mid-1990s. In the event of delinquencies and defaults globe, the sub-prime mortgage market could implode. Although many of these lenders back their loans to sell to investors, many maintain their own portfolios. Some of these lenders are particularly vulnerable because they retain the mortgages that are very difficult to sell.

Other red flags ahead for the sub-prime segment are as follows: many of these lenders do big business in California, where the median house price rose by 16% during 2005 to more than $ 548,000, many of These lenders require only limited documentation of borrowers, almost inviting fraud, and this segment has aggressively pushed interest-only, adjustable rate and negative amortization mortgages to borrowers weakest. As rates continue to rise, these loans will put the squeeze on innocent borrowers who are likely to see their monthly payments rocket.

CIBC analysts believe that in the face of rising rates, up to 10% of households in the U.S. could face financial crisis as a result of aggressive lending that they have taken. Many of these borrowers are on the label as to shock more than $ 1.3 trillion in adjustable-rate mortgages compared to the increases. Some borrowers will face increases in pay over 150%.

What sound does a freight train that when it comes to hitting a wall? Ask the mortgage lenders who have worked for some of the banks during the 1990s. A number of these banks collapsed after writing very aggressive lending during the past few years. Some lenders made loans that were as much as 125% of the values of home, thinking that the housing boom would continue forever. Some accuse mortgage lenders of moving mindlessly as a group of lemmings. Perhaps the metaphor that should be modified. Lemmings rarely develop Alzheimer’s disease and rarely found pounding the walls.