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.
Why mortgage lenders could see an even bigger threat
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Dan Caplinger owns warrants on Bank of America, JPMorgan Chase, and Wells Fargo. The Motley Fool recommends Bank of America and Wells Fargo and owns shares of Bank of America, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.