What are the impacts of 2007 sub prime mortgage crisis?

Answer 1

It seems like every time I turn on the radio, watch the news or read a newspaper, I'm bombarded with stories about the "Mortgage Meltdown". Daily calls come in from current and future homeowners confused and overwhelmed with all the media hype surrounding the state of the mortgage industry. The media has done an excellent job of creating mortgage hysteria. The term "meltdown" is great for evoking an emotional response from consumers. It is not, however, the most accurate term to describe the state of the mortgage industry. Knowledgeable mortgage and finance professionals are thrilled to see these long overdue corrections. These corrections are fixing a problem that has been developing for many years. The mortgage industry is simply returning to "common sense" lending practices. Just a few short months ago, virtually anyone could buy a home. Do you recall the promotional hype surrounding "easy-qualifying" mortgage products and offerings? TV, radio, internet, billboards and direct-mail advertising slogans touted things like: * 100% Financing * Interest Only * Pick Your Payment * Negative Amortization * No Income Documentation * No Money Down * Bad Credit, No Assets, No Job-No Problem! No kidding, it was crazy! Mortgage companies realized they could charge much higher interest rates to borrowers who could not qualify for traditional mortgages. Nearly all of these subprime mortgages were ARM loans that adjust to significantly higher payments after 2 or 3 years. Guess when the vast majority of these loans were made? You guessed it-2 to 3 years ago! Subprime mortgage payments are now adjusting sharply upward and many of these loans are falling into foreclosure. The good news is that these subprime loans make up a very small percentage of the overall mortgage market. The opportunistic subprime lenders who peddled these mortgages are paying the price for offering senseless, greed-driven loans. In several states, lawmakers are pushing legislation to outlaw some of these loans. Potential home buyers who will be most affected by the coming changes are those with no money for a down-payment, and/or poor credit. Borrowers who cannot document their income may also experience difficulties. There are still legitimate "100% financing" programs available to borrowers with good credit and a solid job history. Borrowers with less-than-perfect credit can continue to qualify for home loans if they can come up with at least a 3% down payment or get 3% down payment assistance. Unfortunately, changes in the mortgage industry are penalizing borrowers seeking jumbo mortgages (loans above $417,000). Many major lenders have disproportionately raised interest rates on these loans. Rates on many jumbo loans are at least one percentage point higher than they were a few months ago. I strongly disagree with this increase and believe that these rates will return to normal in the near future. Many reports claim that mortgage interest rates are at their highest level in years. Actually, historically speaking, rates are very low. The following rates are based on the national average for a 30-year-fixed-rate mortgage (Hsh.com): September 2007-6.83% September 1997-7.59% September 1987-10.95% September 1977-8.84% Today's mortgage climate makes it more important than ever to maintain good credit. I recommend you check all three of your credit reports at least once a year. If you find errors, contact the credit bureau and the original creditor to get them corrected as soon as possible. You can do this for free by visiting www.annualcreditreport.com. Checking your credit report through this site will not reduce your credit score. If you currently have any form of adjustable rate mortgage, now is the time to convert to a fixed rate. With respect to your home-equity-line or second mortgage, make certain that you understand your true blended rate on these loans. If you have any questions regarding this subject, don't hesitate to call me. A mortgage is often your largest financial liability. It is essential that your mortgage is structured so you receive maximum benefits with minimal financial risk. Working with a knowledgeable mortgage professional will help ensure that you receive the best possible mortgage advice.