Hundreds of thousands of homeowners who can no longer afford their mortgages are facing foreclosure–what is happening to these families?
“I think there are a few bumps before a family ends up at a shelter door,” said Phyllis Ryan, director of the Philadelphia Committee to End Homelessness. “When someone loses their house, they usually return to renting, or sharing a home with family or friends.”
Ellen Schloemer, director of research for the Center for Responsible Lending agrees, but says the crisis is just now ramping up and the ripple effect on families could be felt for as long as a decade.

Understanding the Crisis

The mortgage crisis is affecting the subprime mortgage market, which means it is having an impact on people who are in the lower income brackets, or have blemished credit.
The problem occurred due to several changes in both the mortgage industry and in appreciation, particularly in the Philadelphia and South Jersey areas.
Approximately three to five years ago, mortgage interest rates for Adjustable Rate Mortgages, or ARMs, were at their lowest in years. Low interest rates, sometimes as low as one to two percent over a short period of the loan, made payments low. Real estate agents and brokers eager to get people into homes sold these types of loans to people who most likely could never have qualified for a traditional mortgage.
The disadvantage of an ARM type loan is that the interest will climb – either in a fixed length of time – or with the prime interest rate. The result is rising payments – sometimes triple to quadruple what the borrowers were paying in the beginning.
At the same time, homes in the Philadelphia area were increasing in value – at a rate of 5-14 percent in 2004 and 2005, making it even more difficult for the working poor to afford their own homes.
Schloemer said a homeowner with a $1,522 mortgage payment could have seen it skyrocket to $2,208 in just 2 ½ years. As a result, according to the Center for Responsible Lending, 2.2 million borrowers who obtained subprime loans since 1998 will be foreclosed upon.

Homelessness Not an Issue – Yet

According to family shelters in the Philadelphia area and the Office of Supportive Housing, families are not reporting that foreclosed mortgages were the reason for their being homeless.
However, as the demand for rental property tightens and strains on friends and family who are housing these families increase, that might change.

“With worse credit, these families end up paying more for everything,” said Schloemer. “Our research indicates it takes a decade for these families to get back into their own home.”
And that leaves the question of the impact of the mortgage crisis open for awhile.