The initial wave of toxic Subprime Mortgages that caused so many foreclosures and put so many REO (Real Estate Owned) properties on the market may have subsided ? but the bursting of the housing bubble has caused so much chaos on Wall Street that the entire world economy suffered as a result.



Now, America's current economic woes are going to trigger the next wave of mortgage defaults ? not on shaky Subprime deals, but on loans that were fairly solid to begin with.

According to a recent ?USA Today? article, a record 4.2% of consumers are falling delinquent or into default on all loan categories ? and most economists expect the problem to get worse this year. Now that big companies are laying off more and more workers, more and more average Americans are having trouble paying the bills. March saw almost 700,000 jobs lost to downsizing ? and more than 2 million lost jobs altogether in 2009 so far.

James Chessen, chief economist for the American Bankers Association, put it bluntly; ?The wheels have fallen off the economy.? Another troubling sign for current mortgages? The insurance programs backed by the Federal Housing Administration (FHA) are under incredible strain due to the record home-loan defaults. Kenneth Donohue told a Senate Budget Committee panel on April 2nd that the FHA may not have the systems and resources to ?adequately perform? its duties, which include insuring home loans up to $729, 750.

This is even more distressing considering the FHA's share of the market has zoomed up to an incredible 70% from 21% a year ago. The FHA also has fairly stringent standards when it comes to approving loans.

A record mortgage default rate in America ? now at almost 8% according to the Mortgage Bankers Association ? is driving the erosion of the FHA mortgage insurance fund, which has shrunk to $12.9 billion from $21 billion.

At a time when the average homeowner has to decide which bills to pay first ? more and more are deciding their mortgage actually comes last. Why? Because they are ?upside-down? in their homes ? that is, they owe more than the houses are actually worth. And in many cases they can rent a similar or even better home for hundreds of dollars a month less, due to the lower value of homes today. So they pay their car and their credit card payments and allow their home to be foreclosed.

Most are able to live in their home many months without making a payment before the bank finally forecloses. It is not uncommon to talk to homeowners who were able to live in their properties for as long as 18 months without making a payment!

After the foreclosure sale is complete, REO listing agents, working on behalf of the lender, will offer the homeowner ?cash for keys? to help them relocate and to avoid a prolonged and costly eviction. Most lenders are quick to offer the occupant 1% of the value of the property to relocate quickly. This can equate to thousands of dollars for these homeowners - money that is most likely used to pay for a security deposit and first month's rent on a new home.

It's clear the economy is really in a vicious cycle ? the housing market crash has prompted the Wall Street meltdown, which, in turn, has prompted mass lay-offs, which, in turn, will cause a whole new wave of foreclosures and eventually REO listings.

That's why more and more people are turning to the REO business to weather this recession. Real estate agents, brokers and property preservation contractors have hundreds of thousands, if not millions, of properties to work with ? properties that must be secured, repaired, maintained and sold. These properties are selling due to the low prices and incredible opportunities they present to investors who have the money to take advantage of them.

Copyright (c) 2009 Frank Patrick