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Why the Next Mortgage Crisis Could Come Sooner Than You Think

The mortgage crisis that led to the market meltdown in 2008 was devastating for investors. But some believe that a second mortgage crisis could be coming, and one key catalyst set to occur later this year could start a new wave of trouble for the mortgage market.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the next threat to the mortgage market: the Home Affordable Modification Program. Dan notes that under HAMP, many homeowners got mortgage lenders Wells Fargo (NYSE: WFC  ) , JPMorgan Chase  (NYSE: JPM  ) , Bank of America (NYSE: BAC  ) , and other lenders to cut principal balances or reduce interest rates on their mortgages. But for hundreds of thousands of homeowners, low rates were slated to expire after five years, and increases of up to one full percentage point per year on their rates could be costly. With estimates of adding $200 per month to mortgage payments, rate increases could trigger a new wave of defaults and necessitate even further action to help homeowners. Dan concludes that the threat won't hit all at once, but that pressure from the situation could last for years to come.

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Comments from our Foolish Readers

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  • Report this Comment On March 08, 2014, at 5:53 PM, KateToo wrote:

    I think the crushing blow will come from all those low interest-only HELOCS out there from years ago that are just now beginning to amortize, and from now up into 2017, it will be like a tsunami.

  • Report this Comment On March 10, 2014, at 12:37 PM, akingsington wrote:

    This is correct. Here is an example of Chase modification.

    First 5 years is set at 2% and the remaining is cap'ed out at 5%. So yes. there will be a 3 percentage point increase and will have a tremendous impact on homeowners.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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