More Reasons why the Real Estate Market is Still Down
August 8, 2007 3:51 pmFiled in Real Estate
Most of you are probably aware of the sub prime mortgage market problems. It has been all over the news. Foreclosure rates are at an all time high, especially where I live (South Florida). Florida is ranked #2 in the nation in pre-foreclosure filings. How did we get here?
Mortgage companies are also to blame. In the years from 2001-2005 anyone and everyone could buy a house. If you made $10.00 per hour or $100.00 per hour you could buy a house. The mortgage companies were financing people at 100% financing or sometimes even more, 103% or 105%. This predatory lending has led to a high number of foreclosures, thus increasing the inventory of homes….yet again.
The mortgage problems are an indication of what types of loans have been written over the last 5 years. Traditionally, people would get a 30 or 15 year fixed loan. The principle plus interest payment would be the same for the entire loan. In the days of fast appreciating homes, people were faced with not being able to afford a home in their city with a fixed rate loan so mortgage companies decided to offer adjustable rate mortgages, interest only and negative amortization loans (also known as exotic loans).
Exotic loans are a good option for some people and for people who understand how they work, but the majority of home buyers who bought using an exotic loan have no idea how they work. Would you consider that predatory lending? I would and do! I think the mortgage industry needs to be held accountable. In my opinion, when you turn to a professional to handle your business you expect them to understand the details and provide your with the best solution.
Starting September 13th, exotic loans will have new federal guidelines. The most helpful change is that borrowers will now have to be qualified at their ability to pay on the full rate, not just the introductory rate, which is how so many people qualified before.
