sub prime loans

loans to people that could afford them

Idiots buying houses they couldn’t afford with no money down and mortgages with very low starting interest rates that have now skyrocketed.

A lot of it has to do with variable rate mortgages. People bought houses they normally couldn’t afford, but bought them with very low interest rates. But, since they were variable rate, they went up, and now people can’t afford the payments.

I’m getting into real estate now. But, instead of just being an agent, I’m looking to work all sides of the market. Since there are a lot of foreclosures, look at short sales. Or wholesaling, or investing (buy low now, sell high later!)

People signed short term adjustable rate mortgages with low payments for the first couple of years with the understanding they should improve their credit and refinance into a better rate fixed loan. A lot of people didn’t do that. The payments start rising very quickly along with the interest rate. That screws up the credit even worse so they get stuck with that loan. Can’t pay the high payments and pretty soon, the bank takes the house back. Very sad, but most knew it was going to happen if they didn’t refinance in time.

Now a lot of people of nervous about the housing market scare. The market in some areas is getting flooded with foreclosures decreasing house values. Supply and demand.

Why would anyone (without 7 children, need that big of a house?!)

The reason for all of the foreclosures is that people took out mortgages that sounded good at the time - 3% - 5% interest, but that were not locked in at that rate or that had penalties for locking in. Now the rate is 7% - 9% and there mortgage payments have doubled and tripled.
No one wants to buy a new house if they can’t sale there old house. Or if they can’t aford to pay for the house they are currently living in.

There are a number of reasons, but this is the one I hear about the most often:

People with suspect credit were buying houses they normally couldn’t afford because they got a low ‘adjustable’ mortgage rate for 2-3 years. After the 2-3 years, the interest rate would go up, making the home no longer affordable.
These people could not refinance because all of the lenders that would give them money 2-3 years ago all went out of business because they lent money to people with suspect credit that could not pay them back.
It ended up having a snowball effect on the market.

Your Mom should be able to give you more details and more reasons if she is a real estate agent.

Do 2 “Mortgage-Scam” … giving loans 2 easy ; not stable income 4 some ppl.; Rushing into buying when u do not have a back-up plan; adjustable-rates; Baloon-mortgages; loosing jobs; divorce; deth of a partner; sikness;….2 “MANY”… 2 enumerate……

I am a Realtor as well as your mom. I live in the Miami area and this is the city that is number one in a bad market.
Down here there is way to much inventory, builders built faster than people bought. Prices increased to levels that are out of reality, especially on the beach. In addition banks loaned money to unqualified buyers. Investors purchased with not enough money to carry the properties, which has caused so many foreclosures. That is some of the problems. We should see a recovery by 2009.

It is not just subprime loans… this is a media lie…it is also those with high ficos and income that have lost the income or never had it and used programs geared to the self employed and investors. These programs were interest only or 2- 5 year fixed. Now that it is time for the rate to adjust the borrower’s financial and credit situation has changed and they can’t afford the home anymore. Therefore, sellers are not placing homes on the market due to a lack of buyers.

The high rate of forclosures is due to several different things happening all at once. Here are just a few:

1. Mortgage lenders created new ways of lending to those people who would not have (and probably should not have) been able to qualify for a typical home loan. These “special program” loans had much higher interest rates than normal.

2. People wanted to own a bigger, better, more expensive house than they could afford, and so they opted for ARM’s or Adjustable rate mortgages, that started at very low interest rates. This meant that people paid lower monthly payments initially, hoping that as the rate increased over time, so would their income, and their ability to repay it (a very bad idea, since noone can predict the future)

3. The economy changed, rates went up faster and higher than people expected, and then so of course did their payments (which of course were more than they could afford, that’s why they were using an ARM)

4. Very large financial institutions bought up these funny-money mortgages (see item 1) hoping to cash in on their higher interest returns.

When things turned worse economically, and interest rates went up, all of these thing came back to haunt us and the market collapsed. That’s the root reason of why your mom isn’t selling houses as fast as she used to.

The good news is, these thing always have a way of turning around to the positive again. Just be patient. Things will get better for you and your mom in time.

When the housing market was good (when you were rich from your mom selling homes) buyers were buying homes with adjustable low interest rates. Now these adjustable rates are adjusting and resetting higher than what they were. This is causing their interest rates to rise and that causes mortgage payments to rise. Know mortgage payments are rising and people can’t afford them thus causing foreclosures.

People today are still buying homes but with so much inventory and a wide verity of homes to choose from not all homes are getting bought. In today’s market even though possible it is difficult to obtain a 100% loan for a home. Back when your mom was selling alot of homes a 100% loan was very easy to obtain just by stating what your income is and stating what your assets are. All you need was a good credit history.

Okay. I am going to keep this short, but this being a complex issue, it won’t be a short answer.
Toward the end of the 90s, the economy was starting to stall. The South East Asian Financial Crisis was just fixing itself and the Congress just finished giving $1 Trillion in bailouts to various Hedge Funds and Investment Banks. As we headed 2000, the economy was in a known gray area, and when we had the Internet Bubble popping AND the 9/11 attacks, our economy was heading into a nose dive and fast. So Al Greenspan, the then Fed Chairman, incrementally started lowering the Federal Funds rate until it hit a historic, all-time low of 1%. This naturally made home mortgage rates the lowest in history, hovering around 4.5% (insane to say the least). So, what we saw was a massive push on the part of speculators hedging the housing bubble to pop and then we had house-flippers (a major culprit) increasing their involvement. So, when you have a house-flipper buying a house, and then a few weeks later selling it for a profit, this sends a signal to the market that there is a huge demand for homes, when in fact there is NOT. The monthly MBA (mortgage brokerage applications) report coming out shows only numbers of people, NOT their intensions. So, this sends a signal to the home builders that X amount of people are looking for homes, when in reality its not that many since some of them only want to actually LIVE in the house. So we have tons of homes being built, with not an actual number of people looking to live in them.
Then we have the simple economics of the massively low Fed Fund rate. Simple economics states that if risk is not properly priced into a security or into the market, the investor and the consumer will not act responsibly. With these historic low figures, people got into home loans they never should have been in because of the teaser rates that attracted them. Now, these people are largely to blame and more importantly, they failed to take into consideration the actual impact the teaser rate reseting would have on their monthly payments. Most of them assumed they would likely resell it for a profit, which never happened since the housing bubble popped.
Now, there are many investors who saw this coming. Mainly because the actually inflation being measured was purposefully not counting home prices, largely due to speculators. The reality is, inflation in home prices was hovering between 8-10%, which means we were set for a massive correction since there is no means of sustaining these prices.
The bulk of these foreclosures therefore are coming from people that should never have been in the market to begin with. This is just the foreclosure issue and not the credit issue, which is tied together.
This has nothing to do with the Democrats or Republicans, or the President. This is also an international issue, since the credit crisis that stemmed from these foreclosures had investors in Europe, the UK, Canada, and S.E. Asia.
Now we are seeing houses dropping in value, some as high as 30% in some areas. This is ABSOLUTELY going to continue until the beginning of ‘09. The inflationary pressure placed on this market has shot the prices up with no substantial foundation for so long that this correction (likely the worst in history, but definitely in the past 20 years) will follow the normal 18 month course that corrections of this magnitude warrants.

I hope this helped. Its a huge issue and if you have any further questions, I would love to explain it in greater detail for you, just send me a message with any specifics.

I am a real estate agent and there is one word that is causing it.

APPRECIATION

The house values are not going up ie: appreciating

You can read about all the reasons causing it but to sum it all up in one word its lack of appreciation.

See…if there was APPRECIATION then values would go up
If there was Appreciation then people could refinance
If there was appreciation then people would have desire to buy something that is increasing in value not decreasing.

Once we see APPRECIATION all these problems will be solved. Mark my word, watch the news, check out the numbers and when houses start appreciating again the market will pick up again.

Because of the easy qualify, no down payment loans, taken by anxious people desperate to get in on a market that was spiraling higher and higher. Encouraged by sometimes predatory lenders and real estate agents.

It was often said that if one Realtor said no, another would find a way to say yes. Same with lenders.

Granted, sub prime mortgages are getting hit hard, but they are failing because so many were after the quick sale, the fast bonus and biggest paycheck, and the American dream. People were blind to the possibility of failure, because real estate was the “sure thing” and they couldn’t possibly lose, and now lenders had more money to give, at higher interests rates and using interest only ARMs.

Many went in with good intentions, just not the best financial planning; often with a high debt to income ratio, thinking they could refinance, or flip and sell and come out ahead. And they did this with the blessing of the Realtor and the lender. All three are culpable.