Home loan industry's recent problems

You may have heard the recent trouble you friends or family has had trying to get a home loan.  I am sure you have heard all about the home loan industry's problem this past year.  Even if you were not in the home loan market yourself this year, chances are it will affect you one way or another.  Almost everyone trying to get a home loan in the past year will feel the hurt of what has happened in the mortgage industry.

Plain and simple, people got greedy, and the home loan business was a perfect place to make money.  Now I am not going to place blame on any level here, I am just going to give an inside perspective into what has happened over the past half decade, to get us into the mess we are now in with home loans. 

Basically between 2000 and 2005 it got really easy for anyone to qualify for a home loan.  This being the case everyone and anyone began applying for a home loan.  Brokers and their banks were happy to hand out home loan after home loan since those making the sales were cashing in right and left.  Now you can say it was the broker pushing the home loan but you have to consider the banks selling the home loan in bundles on the secondary market. Next, you must also consider the banks and funds shelling out money to pick up these bundled home loans. 

While qualifying for a home loan did get easier for most people, the home loan they qualified for was often times not a traditional home loan previous generations were accustomed to.  These short term home loans were often fixed for 2, 5, or 10 year terms.  When the loans began adjusting the brokers applied short term "band-aid" home loans.  These loans lasted an additional 2 years with the promises of building up the borrower’s credit history.  They would then say that when this new loan gets set to adjust, they would be able to get them into a long term traditional home loan.

We all can see this was not the case.  A bulk of those home loans began to adjust this past year, and will continue to do so for the next 2.  What these future adjusting home loan borrowers will find is that not only will they not qualify for a fixed traditional home loan; but also that the previous home value they borrowed against is no where near what the home is worth today.  In effect they will either not be able to afford the adjusting mortgage payments, or they will realize it isn’t even worth it to make the payments since the loan is much greater then the actual value of the house itself. 

This is what has lead to the recent defaults and future credit crisis our country will soon face. 

 


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