Express Yourself

About anything and everything on the planet

July 28, 2011

Questions and Concerns About The Subprime Mortgage Crisis

The subprime mortgage crisis began to role into effect in 2007 and has not stopped since. This crisis was spurred on by the explosion of the United States housing market in late 2006. Lenders were signing high risk consumers to adjustable mortgage rates or ARM, based on the idea that these consumers would be able to refinance the loan later on. Unfortunately the later on turned out to come relatively soon when housing prices began to fall. This decrease in housing prices pushed the ARM higher sending the interest rates on these subprime mortgage loans up and making the payments more expensive than some of the borrowers could handle.

Even though reports on the mortgage crisis have slipped from headlines, the nation is still in the midst of a crisis that does not have an immediate end in sight. Many homeowners are stuck with mortgages that they can not pay. Even some prime mortgage holders are going under, meaning that the people with good credit who received the best deals are going under. This is an important point to note because the impression may be that homeowners went out and got mortgages they could not afford. While that is true in some cases, a portion of mortgage owners took on mortgages they should have been able to afford.

When searching for someone to blame, many homeowners come up with individual mortgage bankers and lending companies. Well, the only problem with blaming individual mortgage bankers is that they were just doing their job. Mortgage bankers who pushed people into adjustable rate deals had to be supplied with perspective homeowners. We all saw the ads and some of us heard the sales talk but some of is decided against signing up for these types of loans. There has to be some responsibility applied to consumers. Some deals sound too good to be true and generally they are. It is important to know when to say no.

Of course, none of us could have foreseen the dip in the economy but it seems that some of us should have at least suspected it. Here in economically depressed Michigan we have seen plenty of upper middle class families lose jobs and homes. The trend began a few years ago and has continued to leave a large portion of the state unemployed.

Jobs that are based on consumerism or manufacturing that are fueled by local economies alone are unstable. A dip in the local economy can spell a lay off or total unemployment. It is vital to take the type of job you have into account before buying a home. While no job offers complete security, some jobs are fueled by national or international markets.

Reasons Why The Subprime Mortgage Crisis Occurred

There is no one reason for the subprime mortgage crisis. However there are several factors that helped to fuel this problem. One issue that many people point to when talking about the subprime mortgage crisis is the government.

Some believe that the government contributed to the subprime mortgage crisis by starting things like Community Reinvestment Act. This act was put in place to help consumer buy houses but it forced banks to lend to borrowers that they would not have if not for the act. Automatic underwriting could give a lender a loan decision in less than a minute. Before automatic underwriting it took the underwriter at least a week to process a loan.

Some people question why Private Mortgage Insurance is not working in this crisis. Well, that is a very good question and there is a simple answer. First, let’s define PMI. Private Mortgage Insurance is in place to protect lenders if the borrower goes into default. Lenders present PMI as a way to help those that can not borrow as much money as they need to get a mortgage to still get a home. Private Mortgage Insurance protects the lender and it would be in the lender’s best interest to write loans with PMI. However, in their haste to close the deal, banks came up with ways to skip the PMI.

Skipping Private Mortgage Insurance was done to speed up loans, thus pushing more mortgages through faster. Mortgages were packaged in securities which do not require PMI and leave the lenders with no protection. This was done to enhance the amount of money lenders made but it also made them liable in the long run. This is why lenders are now going under.

Mortgage bankers were able to divide big mortgages for consumers that really could not afford them and this is why some mortgage banks are going under. So the next time you feel sorry for the mortgage companies, don’t but also remember that there were other factors to blame. In short, it is no one’s fault.

The Impact of the Subprime Mortgage Crisis Around The World

Buying a house is a dream that many people have. Although some of the terms have changed, the dream of being a homeowner is still an American dream. Every other aspect of that dream has faded away. The 2.5 kids are totally optional these days. The white picket fence would be too small to encompass the sprawling properties most day dream about. The two car garage that used to be the staple of home ownership has given way to four car garages. Unfortunately, the growth of the American Dream does not equal the growth of the economy or salaries. These disparities have forced many homeowners into foreclosure.

Over the past few months the amount of people who are in financial trouble due to a lowing economy and rising interests rates has grown drastically. The U.S. economy has been slowing down, and has virtually moved into a recession, although many lawmakers do not want to use that term, over the past five months. The rates of bankruptcies an foreclosures are up as are gas and food prices. Salaries are tapering off, making it increasingly difficult for homeowners to hold on to their houses. However, some of this could have been avoided with a little education on the part of homeowners. Before you buy a house, there are some things you must know.

Sub Prime Mortgage Lending

Before we investigate what potential homeowners should know, let’s review what many previous homeowners did not know, or consider. Sub Prime Mortgage Lending was designed for people that can not afford a house. It was drawn up by greedy mortgage companies as a way to sell more. Of course, the job of a mortgage company is to sell more mortgages so actually, they were doing their job. However, there were some mortgage companies that sold mortgages to people that did not really understand what they were getting into.

You may remember all of those ads you would see on television and the Internet or hear on the radio about how anyone could buy a home. There were banner on websites that you could click on and be connected to some mortgage company that would find a way to get you a mortgage. It is so tempting to get a mortgage and a home when lenders tell you that you could be paying much less for a house than you are an apartment. The thought of owning a house and not having to adhere to a landlord’s rules is intriguing to those that are living in situations they are unhappy with. The idea of decorating the way that you want to and having a house to sculpt into a place that you can call your own was enough for many people to take on these to good to be true mortgages.

Sub Prime mortgage lending started homeowners out at very low interest rates. That meant that mortgages started out at very affordable cost levels. However, as the economy began to slow down, the interest rates on the loan began to rise, increasing the amount of the mortgages. This increase in mortgages did not cause an increase in incomes. That of course meant that homeowners had the same money to cover increased expensive.

Homeowners that stretched their finances and moved into homes on sub prime mortgages have seen their mortgages skyrocket. On some cases the mortgages have reached levels that dwarf what the actually house is worth. Those wising to sell their mortgages can not unless they are willing to take a huge loss. Most homeowners are not willing to lose tens of thousands of dollars or they can not sell their house, not to mention, there are very few buyers. This leads to negative equity, a state that you want to avoid at all cost.

Negative Equity Defined

Negative Equity, a state of being that is often referred to as being upside down, occurs when assets that were used to obtain a loan dip below the loan’s balance. This is a serious problem because homeowners can not sell their homes, but they also can not pay the mortgage. One life change can put a family on the streets.

Negative Equity has lead to the abandonment of homes across the country. In some communities houses are being abandoned because buyers just have no hope of making their mortgage. Some buyers have even reached such a level of despair that they are setting their homes on fire. Fortunately these are very isolated events.

Alan Greenspan’s Part In The Mortgage Crisis

Although no one person can be blamed for the mortgage crisis, it is important to note that the Federal Reserve chairman encouraged the big refinance movement that swept through the United States over the past few years. He was in favor of an alternative to fixed mortgage rates, and said that there should be some flexibility in home loans, such as adjustable rates. It is of course, these adjustable rates that contributed the most to this crisis. Some say that Greenspan should have been able to read the signs and take a step back on his encouragement in the mortgage realm.

An Upside of The Mortgage Crisis

There is always a bright side no matter how bleak things may seem. Even though foreclosures are on the rise and some people are in dire financial shape, there are some great deals out there. If you are comfortable with the area of the country that you live in and want to purchase a home, this is definitely a buyers market. Realtors are read to give away houses because their business has come to a dead stop. You can find all type of unbelievable deals on homes right now.

As subprime mortgage lenders continue to go out of business the competition thins out in the mortgage business. If the economy was better and if the subprime mortgage crisis had not exploded the way it did, this would be a good time for mortgage lenders, less competition usually equals less flexibility when it comes to selling prices. However, sine the economy is bad and gas and food prices continue to go up, mortgage lenders have had to drop prices just to attract potential buyers.

In a buyer’s market you are in control of the deal. The realtors that you work with are fishing for a deal but some of them are going to be rather desperate by the time you show up in their office. Remain fair and cam and negotiate a deal that works for you. Never, ever agree to terms that do not fit your situation. Remember, that is what happened in the subprime mortgage mess and you want no part of that.

Try to find sellers that have an urgent reason to get out of their house. If the current owners of the house have a job waiting across the country and are ready to get rid of their current mortgage, they will be more open to negotiations. If buyers have a motivation to get out of their home, you have leverage. The asking price is just an asking price. Don’t let that stop you from viewing the house. If buyers are really eager to unload a mortgage, they will work with you.

If the asking prices does not come down to the exact level that you want, tack on some chores for the owner to do before they leave. If the furnace is old, tell them you want that fixed before you buy the home. Or if a new roof will be needed in the next few years, tell them you want that done and you will take the price they are asking for. Sometimes repairs and much needed work on a house is more of a hassle and cost than the actual mortgage.

Do not let emotions lead your decisions. That quaint cobblestone home may turn out to be a money pit. Don’t get wrapped up in the nostalgia of the whole owning a house thing. Only buy a house that is practical. Don’t buy based on the love of the way that it looks.

Check out the market value of the house before you decide to buy it. Research is the most important part of home buying. Know what the house is worth and how it compares with the asking price. This is the best way not to get taken advantage of when looking for a new home. It is your responsibility to figure out exact what you are getting in a home and how much it is worth. Realtors can help you but you need to get the facts yourself. Remember the seller and realtor all have a stake in you buying the house. Your purchase is the ultimate goal and even the most genuine realtors and sellers want you to buy. Keep this in mind when you are shopping for a house.

Reasons To Wait On Buying A Home

If you are not sure that you want to remain in the area that you currently live in, do not buy a home. Buying a home that you have to sell too soon after purchasing it can cause you to lose money. You may have to actually find money to help sell your home if you sell it too fast after buying it. So if you are not sure you want to remain in the place you are living in, do not buy a home.

It is unwise to buy a home with a spouse or significant other that you are on bad terms with. There is a notion that buying a house can help improve relationships. A house is a more permanent living situation and seeing both of your names on the deed may make you think that the relationship has some sort of permanence. Well, unfortunately that is not the case. Instead buying a home in a rocky relationship can make thing even worse. A home increases monetary needs and repairs can put even more stress on a bad relationship. Not to mention divorces are nasty enough without a house being in the midst of everything else that is going on.

Moving to a new town or region can be very exciting. However that excitement can quickly turn to dismay and you may want to leave shortly after arriving. Always give yourself at least six months in a new area before you begin looking for a house. You may find that your new neck of the woods if not for you.

If your job is on the rocks, don’t buy a home. Many people do not like to think about losing their job due to no wrong of their own. Most of us believe that we have job security to a point as long as we perform well. Of course this is not true and some jobs that have been secure for a good number of years have recently gone under without much warning. Take into account what type of job you have and pay attention to changes closely. Companies have a way of keeping their troubles a secret until they start restructuring and downsizing. Don’t let it come as a surprise that your job is being eliminated just after you close on a home. Be realistic and honest about the job you are working in.

How To Survive If You Are A Victim of the Mortgage Crisis

If you are one of the unlucky many that are fighting to stay on top of your mortgage but are quickly slipping under the tide, act now. While you may not be able to reverse the damage that is done, you need to contact your lender immediately. Communication is key in situations like this. It is similar to people that can not pay their credit cards who take the time to contact their creditors and work out terms with them. Those people that are wise and savvy enough to make their case before the creditors have to contact them are better off than those that sit and wait for the collection notices to roll in. The same is true when it comes to your mortgage.

Begin by writing a detailed letter as to what has occurred in the time since you signed for your mortgage and now. Mail the letter and make a call to the loss-mitigation department of the mortgage company and speak with someone about breaking your payments up into installments. You will be able to avoid losing your home and ease some of the stress and shame you might be feeling about being the situation you are in. It is much better to admit that you can not pay the mortgage and get help for it than it is to not pay the mortgage and go into foreclosure.

Ask your lender if you can extend the life of your loan of do a short term refinance. The refinance is unlikely but desperate times call for desperate measures and lenders are much more flexible these days. Anything that is legal should be asked of the lender. They are not always likely to offer you all of these options so it is important that you know that they exist and try to get the best one for your situation..

If you are in a position that looks bleak even with one of the previous options, then you may have to sell. This is a tough time to sell in some places so your inability to sell may force you into foreclosure. If this happens you are not alone and once it occurs, there is nothing you can do to change it. Pack your stuff and rent a home you can afford. Save your money, pay your bills and you will rebound from this temporary setback. You will live to buy another day.

Is Help On The Way?

Well, that all seems to depend on how bad things get. Now that homeowners with prime mortgages are unable to pay their bills, it is more likely that the government may step in. There have been suggestions that the government should intervene in the mortgage crisis by changing the bankruptcy code or passing a bill that forgives homeowners of some of the loans that are being defaulted on.

There are a few plans that have been getting some attention in Congress. One of them called Appreciating America and is designed to assist with properties that have gone below the original mortgage balance. These mortgages are typically in danger of going into foreclosure because the ARM is reset. Appreciating America would allow these mortgages to be refinanced at as much as 85% of their value. If there is a balance leftover it will be put into a second mortgage and the homeowners will not have to pay for five years.

This is a good idea because it eases the weight of the first mortgage enough that the homeowners should be able to stay afloat financially. Any appreciation that is incurred by the second mortgage will be shared by the lender and homeowner. While this sounds like a good idea there is a concern that some borrowers would free up more money and find a way to get back into a bad financial situation.

As a homeowner you should not wait for help from outside sources. If you are in mortgage trouble you must be proactive and seek out solutions. By the time the measures suggested by some members of Congress make it through the House, you may have already entered foreclosure.

When Will The Mortgage Crisis Be Over?

Well, that I a very good question. The problem with predicting the end of the mortgage crisis is that we just can’t know when the financial situation of the country will turn around. There are so many different factors to take into account that the improvement of one is not going to make too much of a difference.

With that said, there are a few things that can turn the mortgage crisis around. One of them is a stronger economy. If people begin to spend more money making purchases, the economy will begin to speed up a bit. Unfortunately, with increasing in products that we use everyday, most of us are buckling down and budgeting. Purchases are far and few in-between.

Another factor that is out of our control is violent swifts in the world markets. When there are natural disasters and attacks in various parts of the world, stocks plummet around the world. The reason why this happens is because there is uncertainty and uncertainty can be a good reason for traders to stay put. When deals are not made, the market is not being fueled and stocks go down.

There are some dismo accounts that predict the market will not begin to turn around for few years. The Federal Reserve has been cutting rates on a regular basis which helps the economy some because it encourages people to buy again. Other measures that have recently been taken are the Economic Stimulus plan that the government came up with. Apparently somewhere in Washington the notion that sending most tax payers 600 dollars would encourage them to make a purchase of some sort. Unfortunately in cash strapped America most people are that are getting a stimulus check plan on saving it or using it to pay debt.

Where Do We Go From Here?

The “American Dream” of owning a home encourages everyone to want a house. Having four walls that you own can be comforting and it may be a dream of yours but you have to be realistic about dreams. Owning a home is great, it can also be a burden that sinks you financially. Before you sign on the dotted line, do your homework. Not just about the home you are buying but also about mortgages in general. Know what you are signing up for and be sure that you have a huge safety net. The job market can become unstable over night and inflation can strike, pushing up the cost of necessities. The price of gas is a great example of something we use everyday that has become extremely costly.

Revise the American Dream. Don’t get caught up in someone else’s dream. Life can be wonderful and great without owning a home. There is no reason why anyone should rush into this huge responsibility. Living in an apartment until you can afford a house is not “throwing money out the window” as some people say. Think about it. You don’t have to worry about maintenance, lawn care, snow shoveling or paying taxes.

Those effected by the subprime mortgage crisis should learn the necessary lessons and begin rebuilding their lives. Even though the economic future is always uncertain, it is important to stay positive and realize that changes are on the way. A new president will take office soon, new business opportunities may arise and by adhering to a strict budget and living below your means can help you prepare for the next time you want to buy a home.

Use the mortgage crisis as a starting point. If your home is foreclosed on take it as a sign that you need to make some changes in your life. Relocate, take a few classes to improve your job situation or take on a roommate to help ease the burden of bills.

In order to get your financial situation in order, you can cut costs and spend less. There are always ways to cut down on what you are spending. One huge expense is going out to eat. Spend less time in restaurants where you pay more money for food and generally have to add in a tip as well. Stay home, cook meals and eat less. The Majority of us overindulge at most meals. Cutting down on how much you eat will help your wallet and your waistline.

Communities Hit Hardest By Subprime Mortgage Crisis

It seems that Hispanics and African Americans were hit very hard by the subprime mortgage crisis. These two groups on average got higher loans during 2005 than whites and Asians. Those that rent from owners that default on their loans also are suffering because they lose their housing even though they are paying rent. Renters can not fight being evicted even though they are paying rent. In some states most of homes being foreclosed on are not occupied by the owner, thus creating a terrible ripple amongst those that normally would not be effected by the mortgage crisis.

Workers in the financial sector are also in trouble due to the mortgagee crisis. One major group that have been effected are mortgage bankers and those that worked for lending companies. As many lending companies went out of business their workers were left without jobs and the skills they have, in the realm of mortgage banking, are not marketable.

Now prime mortgages are being effected by this crisis as well. This group is now threatened with a dip in their credit ratings and the possibility that they may not have the money to pay their mortgages. There is a chance that this group of buyers could fall down the slippery slope of he mortgage crisis and some of them could end up in foreclosure as well.

Banks and other financial institutions are scrambling to hold things together. Some banks have resorted to meeting clients at the door and pitching various financial products to them. In the wake of the crisis around 100 mortgage companies and financial institutions have had to shut down or be sold.

In short, everyone is effected by the mortgage crisis. There is no escaping some sort of pain from the massive crisis. The rest of 2008 will bring with it more rate increases on adjustable rate mortgages meaning that there will be more crisis for some. Insurance companies are hesitant and nervous because arson is up and they have to make good on policies that they can not prove were set deliberately by the owners.

Even though the mortgage market is questionable and uncertain there has recently been an increase in the amount of new home permits issued across the country. That means that some people are still in positions to buy homes. After all, it is this extreme crisis that has created this very attractive buyers market. One person’s misfortunate is often another’s fortune.

Note: If you have a story to share about mortgage crisis please send us your story. We are always pleased to hear from others. We can even share it on the site for others to read.

Similar Posts:

Post a Comment