Some borrowers hit by sluggish economy

The same U.S. economy that has produced the lowest mortgage interest rates in 40 years also has produced the highest rate of foreclosures and loan delinquencies in the 30 years such records have been kept by the Mortgage Bankers Association of America.

Interest rates in general have dropped dramatically in the past year as the Federal Reserve lowered interest rates a dozen times in an effort to stimulate a sour economy.

As a result, thousands of Americans have become homeowners while taking advantage of low interest rates, bringing home ownership to a high of 68 percent of all households. This is up from 63 percent a decade ago -- at the beginning of the decade-long economic expansion that ended last year with what economists now classify as a recession.

While economists also say the economy is recovering, they point to sluggishness that is slowing down a full-blown turnaround that would match the growth of the 1990s. Some experts predict it may take four or five years for a full recovery.

In the meantime, homeowners with mortgage payments to make have been hit hard. Nationwide, 1.8 million Americans have lost their jobs since last year's downturn.

Part of the mortgage malaise can be attributed to nontraditional loans that sounded like a good idea when the economy was strong, but which have left many home buyers in a financial squeeze. Even buyers with six-figure incomes have found themselves defaulting on huge jumbo loans. And first-time home buyers, attracted by low interest rates, are struggling to keep up with the payments if they have been adversely affected in some way by the economic slowdown.

In addition, lenders eager to make loans have overextended the repayment abilities of many borrowers by making loans for as much as 125 percent of a home's value.

While these financial pressures are contributing to foreclosures and late house payments, the current situation also has been a boon to many homeowners and home buyers. Mortgages have been refinanced at interest rates last seen in the early 1960s, and first-time buyers have been able to lock in 30-year rates that could save them thousands of dollars over the life of a mortgage.

Some forecasts indicate interest rates have yet to bottom out. Although the Federal Reserve has kept rates alone for several months now, there are continuing pressures to lower them even more. And some indices of anticipated interest rates show a softening as long as a year out.

Meanwhile, Americans who rely on the security of safe investments like certificates of deposit are experiencing some of the lowest returns in decades. The good news for these cautious investors is that their money is earning something while stock markets continue to sink.