The Mortgage Crisis - Who Is to Blame, Why it Happened
Posted by: real estate / Category: ForeclosuresWe are in the midst of the worse mortgage and foreclosure crisis ever seen in the United States. There are areas of towns that are almost all foreclosed homes.
So, who’s fault is it? Is there one group that deserves more blame then the other?
First we have to look at what the main cause of this problem really is. Sub prime mortgages.
Mortgage brokers were making a killing. They make money whether they gave mortgages to people with 720 credit scores or people with 500 credit scores. As long as the mortgages were approved they received the same commission on the contract.
Thus they gave people they knew could not afford the mortgage the loan. On the other side though, these people should have read the contract and known what they were getting themselves into. Many people with unstable jobs, little money in the bank, and a salary in itself barely able to cover monthly mortgage payments, still went through with the loan contracts. Even though both parties could be at fault here, it was more of an ignorance to the possible future market conditions that led to both parties decision making.
You see, the brokers as well as the borrowers figured that home prices would continue to go up in value. This means they could sign variable interest rate mortgages, that reset at a much higher rate in the future. Both the lenders and borrowers figured that the home price increase would simply allow the borrowers to refinance the loan at a lower rate after the home price increased, giving the borrower equity in the home while also allowing them to lock in a lower rate in the future.
Unfortunately the opposite occurred and home prices tumbled. With mortgages higher than the value of the underlying assets, the homes, no bank was crazy enough to refinance homes for the borrowers, thus making the borrowers stay in the original loan terms. Because of this their loans reset at a higher rate since they were variable contracts.
Much of the blame simply falls on the regulators involved. There should have been more strict rules and regulation in place to protect the borrowers. Variable rate mortgages should be outlawed in my opinion, as they are usually in place so that lenders can lull borrowers into a false sense of security. If you are applying for a mortgage, be sure to read the contract carefully, and have a lawyer explain it to you before signing any papers.
Brian Krassenstein Helps Manage Real Estate Forum as well as beign manager of Talkgold’s Investing Forum
Brian_Krassenstein
Last 5 posts in Foreclosures
- Government Tax Foreclosures Can Be Amazing Opportunities - April 1st, 2009
- Clean Foreclosure Homes - Where to Get Clients Who Need Your Services - April 1st, 2009
- Prevent Foreclosure Scams - April 1st, 2009
- How Do You Buy Foreclosed Properties? - April 1st, 2009
- Owner Financing - The Foreclosure Process - April 1st, 2009
When buying a new construction condo in Ontario, the Tarion Warranty Corporation provides protection to buyers under the New Home Warranty Program. Membership of this program is mandatory for new construction builders by offering protection to buyers of new construction projects. Such protection includes: deposits, defects in the workmanship and materials and protection issues involving delayed closings and occupancies.
The program covers buyers for a number of items however the most important especially in this market is a deposit guarantee. With news about new construction condo projects not moving forward, it is a reassuring to know that the buyer is covered… Continue reading
Many homebuyers say they are waiting to find the right home before getting pre-approved with a lender, and I let them know that is a bad idea. Everyone should get pre-approved before starting to look for a home, because it helps narrow down their search into homes they can afford, helps their negotiating ability, and helps them find the most home for their money.
A good faith estimate from a lender can make a big difference in negotiating an offer because it helps in writing that offer. If you know how much the closing costs and prepaid items will be, then… Continue reading
The Weekly Homebuyer’s List in the Denver Post catalogs residential real estate sales in Colorado. The Homebuyer’s List for the week of May 24th totaled only 62 sales for all of Douglas County, CO. The low number of sales may not surprise many in the current market, but a closer examination of the problem reveals a strange disparity in housing prices. It may be easier and a little more fun to think of today’s market as a Monopoly game.
** The most expensive property conveyed last week in Douglas County, CO was for $1,050,000. That would be Boardwalk in Monopoly terms… Continue reading
If you’re getting ready to buy a new home then this article can save you tens of thousands of dollars in interest.
Did you know that the government will give you over $15,000 in order to make it down payment on a new home? Did you also know that if you need money for home repairs the government will give you money to repair your home? Did you also know that if you have a business that you would like to start the government will give you up to $100,000 to work from home?
The government gets money from for major corporations… Continue reading
Related posts
Tags: Foreclosure, mortgage, mortgages