It is clear to anyone who has a home loan or who even just reads about the financial news, that drastic changes have occurred in the housing market.
As an almost “perfect storm” of mortgage related factors converged on the economy and harried homeowners have felt the sting of lower housing values, rising rates and a severe credit crunch.
It should have been predictable that any market that had the run up that the housing market had was destined for a steep fall. But many homeowners who used these soaring values to borrow on easy credit terms, even with lousty credit ratings, were bound to be caught in a trap as the prices fell.
The loans that were granted to less than perfect applicants were sure to be the first to suffer when prices came down and interest rates increased. As a result of loose credit policies, many borrowers who really couldn’t afford the mortgage payment were left exposed when there was a rise in their adjustable rate mortgage. They could not refinance since there was little to no equity left in the home, and interest rates had increased. This is a recipe for disaster.
As more foreclosures occurred, the increasing glut of homes for sale further pushed down housing values. And lenders didn’t care that these less than prime loans that were causing 60% of the defaults only made up 20% of the market. Indeed, two states alone, Florida and California, were responsible for 36% of the foreclosures nationwide.
Even so, banks clamped down on mortgages throughout the country in a knee jerk reaction, so that all applicants had to meet strict criteria.
What does this mean? Some say it is a return to the way things ought to be. Some people may regret that the time of easy credit and low down payments are gone, however.
Banks now want their borrowers to put up a good down payment (at least 10%, and in most cases more), have a credit rating of 700 or more, and they are lending on lower home values.
The good news for buyers who can raise both the necessary cash and their credit score, is that mortgage rates are still low historically, and there is a lot of very good real estate inventory to choose from at very attractive prices.
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