Find bargains in the mortgage meltdown

Investing in a foreclosure is no easy route to wealth, but there's money to be made if you're willing to do some research.

By Pat Mertz Esswein, Kiplinger's Personal Finance

The growing number of homeowners who are falling behind on their mortgage payments could spell opportunity for real estate investors.

Most of the problems are among homeowners with "subprime" mortgages -- loans extended to borrowers with poor credit, low incomes or both -- and particularly among subprime borrowers with adjustable-rate loans, which total roughly 7% of the $10 trillion mortgage market. They are being pummeled by spikes in their mortgage interest rates as the low introductory rates expire.

Some 700,000 of these loans are likely to go into foreclosure between now and the end of next year, because the homeowners won't be able to cover higher payments.

So should you invest in a foreclosure? It's not an easy, quick, cheap or surefire route to wealth. The typical deal comes with more problems than the average do-it-yourselfer can handle. Even so, it can be rewarding if you're willing to do your homework.

Compared with a year ago, foreclosures are up more than 25% nationally, according to RealtyTrac, an online marketplace for foreclosed properties. A total of 130,500 new foreclosures were filed during January, the most in the two years since RealtyTrac began tracking the numbers. Nevada, Michigan, Georgia, Colorado and Arizona have the most new foreclosures compared with total households.