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Currently in the United States a crisis of sorts is brewing in the mortgage market with sub-prime loans going bad. In 2000 approximately 3% of the loans originated in the United States were sub-prime mortgages. Lately that percentage has been much higher.
Over the past six years lenders have smelled blood in the water and sought to exploit an area of the lending market that they felt would make them a lot of money. And I guess they were right, as long as there were no ethics involved.
But with the housing market cooling and loans originated in the past two or three years or so going bad as fast as they are written, some lenders that have enjoyed strong growth in the sub-prime market are now finding that as many as 19% of those loans are delinquent and in default. And that adds up to billions of dollars.
And now, some of the lenders behind the sub-prime market have found themselves insolvent. Waves of these smaller companies have been going bankrupt, with as many as 22 just last week seeking protection through bankruptcy.
What makes this situation particularly scary is that many of these newly originated loans are interest only or adjustable interest rate loans specifically designed to subvert the system; and if interest rates creep up even just a bit, many more will find themselves in a situation where they are losing their homes. This isn't just an economics problem....it is an ethical problem, for some mortgage brokers and lenders are making big fees on the front end by juggling the numbers for highly risky buyers.
The lesson to be learned from this story is that the consumer should not rely solely on the approval by a lender. They should make certain that the proposed monthly loan payment will fit within their budgets with room to spare. And if not, then buyers must lower their expectations for housing.
At Tyler Texas Real Estate we don't juggle numbers. Should a buyer not qualify to buy the property he's chosen, we recommend that he buy a lesser property in order to qualify within standard guidelines. It's good for the buyer; it's good for the country.....and the realtor can look at himself in the mirror every morning.
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