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Why the Next Mortgage Crisis Could Come Sooner Than You Think

By Dan Caplinger - Updated Feb 14, 2017 at 4:58PM

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The first mortgage crisis crushed the stock market. Will the next have the same impact? Find out here.

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 ( WFC 2.95% ), JPMorgan Chase ( JPM 1.50% ), Bank of America ( BAC 1.27% ), 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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$44.71 (1.27%) $0.56
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
JPM
$162.57 (1.50%) $2.41
Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$50.25 (2.95%) $1.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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