As the article below states, New Hampshire homeowners will continue to see a rise in the rate of foreclosures into 2008 with no signs of interest rates decreased appearing.

The recent estimate by the New Hampshire Bankers Association that 1,800 homeowners in the state will face foreclosure this year — a number that is expected to rise next year to more than 2,000 — is a reflection of the gold rush downside to the regional and national housing market of the decade.

The bad news for many at-risk mortgage holders across the country is that matters are only going to get worse. The low-rate enticements that seduced many seeking to become homeowners are now evolving into interest rate hikes that make payments almost impossible to make.

Many lenders with delinquent loans are out-of-state financial institutions who have played what essentially became a legal pyramid scheme — and often targeted risky borrowers. These subprime lenders were less than diligent about being paid back because their goal was to sell these loans to the next group of speculators.

The good news for the state is that unlike the savings and loan debacle and housing market recession of the 1990s, the state’s banking community remains relatively strong.

Democratic presidential contenders John Edwards and Hillary Clinton have called for increased regulation, active oversight and greater penalties for predatory practices.

The Bush administration and the Republican Party mostly have ignored or downplayed the need for more legislation to deal with predatory lending. A Republican National Committee spokeswoman told The Associated Press that such efforts would “put big government in control of the ’strings’ that are currently being driven by America’s free market economy.”

Because it was essentially a speculative market that involved a wide range of players — fly-by-night operations and major financial institutions and private hedge funds — we don’t know yet how much the collapsing subprime market will affect the overall economy. But we have seen in the past few months some volatile swings in the markets due to one lending collapse after another. It’s a trend worth watching very carefully.

The article below describes how foreclosure rates in the state of New Hampshire will continue to climb in 2008 as more and more subprime variable rate mortgages continue to fail due to ever increasing adjustable rates.

New Hampshire will see foreclosures continue to increase into 2008 as subprime mortgages continue to fail, a study released yesterday said.

Despite the increase, foreclosures will not rise to the level they hit during the early 1990s, and will not drag down New Hampshire banks, according to the study by Brian Gottlob of PolEcon Research in Dover. The New Hampshire Bankers Association asked Gottlob to conduct the study.

“The health of New Hampshire banks, unlike the 1990s, is not at risk,” Gottlobb said. He said he thinks foreclosures will peak by mid-2008 and end the year at about 2,100 statewide.

Banks hold about a 28 percent share of the mortgage market, but account for only 3 percent of foreclosures, his study showed. Subprime mortgages, most written by mortgage companies and brokers, account for 70 percent of foreclosures although they account for just 13 percent of mortgages in place across the state.

Foreclosures will hit the real estate market, cutting demand for homes by 10 to 15 percent through 2008, Gottlob’s study said. He warned that if housing prices fall by 10 percent, foreclosures will increase by about 80 percent.

Bankers yesterday said that the problem will work itself out. They said things will get worse if lawmakers make changes that tighten credit.

The reason behind this rash of foreclosures is different from the 1990s housing market collapse. Rather than a weak economy, the loans are going bad because they were risky to start with, as housing prices rose and mortgage companies rushed to lend money to borrowers whom banks rejected. So far, the conventional mortgage market has seen little impact.

The subprime loans carry adjustable rates and can be written in a variety of ways — no down payments, no income documentation or principal payments, perhaps without escrowing for taxes or insurance. Any one factor creates a risk of default, Gottlob said, but many of the lenders layered on the risk.

The number of subprime mortgages in the New Hampshire market increased more than ten-fold since 1999, from 1,700 loans to 22,000 by early 2007.

Gottlob said mortgage credit quality has been eroding for the past two years as housing prices stagnated and began to fall. His figures show 19 percent of subprime borrowers are behind on their mortgage payments, compared to 2 percent of more traditional home loans. In the first quarter of this year, New Hampshire was slightly above the national average in mortgage loan delinquencies, at 2.9 percent.

Not all subprime borrowers squeak into mortgages with bad credit and low income.

Some higher income families push the limits of their borrowing power in order to buy as big a house as possible. That allows them to make money in the short term if housing prices rise, but creates high risk of default when prices fall.

The subprime industry has collapsed in recent weeks as investors refused to buy packages of risky mortgages out of fear they would turn into bad loans. The industry slowed its lending, and a number of companies have gone into bankruptcy or closed their doors.

NHBA president Gerald Little said the subprime market has had little effect on state community banks. Banks made roughly one-half of a percent of their loans as subprime mortgages, while mortgage companies increased subprime lending from 13 percent of their total loans in 2004 to 30 percent in 2005.

Gottlob said that close to one in five of those who signed subprime adjustable rate mortages will see their interest rate increase by 50 to 100 percent at the end of the introductory two years.

The problems have caught the attention of Congress and presidential candidates.

Sen. Hillary Clinton said this week she’ll bring legislation in September aimed at predatory lending.

The New Hampshire Legislature this year passed regulations that got tough on the foreclosure rescue industry, which held itself out as a solution to those in trouble with subprime loans. Consumers complained that so-called rescue companies used shoddy and deceptive business practices that left them without a home or the equity they had built up. The new law carries penalties that include fines and jail time.

NHBA chairman Stephen Christy said yesterday that lawmakers should think hard before going after subprime lending and not confuse it with predatory lending.

The Legislature could make things worse by making it harder for banks to structure refinancing options.

Gottlob agreed that if troubled borrowers can’t refinance their existing subprime loans, “you’d be in essence dooming them to foreclosure.” Gov. John Lynch, who signed the bill on foreclosure rescues into law, said the state offers help for new borrowers and those who find themselves facing loan troubles.

“Too many New Hampshire families are seeing their dreams of home ownership put at risk,” he said in a statement. “We are working to make sure vulnerable families aren’t exploited further with a new law that cracks down on mortgage foreclosure scams and with new resources to help families avoid risky mortgages.” He urged homeowners running into mortgage problems to call the New Hampshire Banking Department in Concord. The department is also running informational sessions around the state to help consumers avoid risky mortgages. Agency staff will review loan documents to check for improper activities by mortgage originators and provide consumers with referrals for further assistance.

New Hampshire is not the only state facing these problems but is a prime example of the issue that will continue to face the nation.