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The Decline of the Bad Credit Housing Industry

By: R Chandler Smith Recently the most buzzed about issue in the real estate world, the abrupt death of the sub-prime lending industry. Ok, that is a bit exaggerated. The bad credit market isn't over, just much more strenuous than it has been in the past five years. Prior to this week, as long as you had a job and weren't in jail you could get approved for a mortgage loan. Suddenly, with much harder lending policies, many sub-prime borrowers are finding themselves either unable to refinance their homes or unable to purchase a house at all.

Is this just the shockwave of the housing bubble bust? During the housing boom that ended in 2005, money was poured without concern into unconventional housing loans that let people to buy houses with a small amount down or without verifying their yearly income. This was the gasoline that stoked the housing boom fire. Lenders were totally aware of what they were doing the whole time. They had no business offering some of their loan products to people of low credit and in the thoughts of many people the very act of doing so constituted as predatory lending. I mean think about it, offering an individual who barely makes above minimum wage a 3 year arm loan? Chances are high that this person is going to default on that loan. But the banks didn't care primarilyhonestly because the investors didn't care and as long as there were investors to buy the loans back there was no need to look back.

And that's when Freddie Mac made their statement. In the last week of February, government sponsored mortgage and securities investment organization known as Freddie Mac told the real estate world that they were tightening their standards and were no longer buying high risk mortgages made to those with low, or sub-prime, credit history. The shockwave of this announcement could be witnesses all across the globe as stocks began to immediately drop. Without this government sponsored group to buy back mortgages that lenders were developing, they would surely run out of monies to create any more loans. And with the rising number of defaults on current loans, that capital would vanish even faster and soon leave red ink. Due to this quick change, numerous sub-prime lenders have closed their doors. At last count fourty-four mortgage lenders have shut down or radically scaled back their operations, including sub-prime leviathan New Century. Now, lenders, backers and buyers of mortgages are pulling back as well.

The New Century illustration is of specific concern because of fears that trouble in the sub-prime side could creep to prime home loans, causing pain for many more lenders. The most asked question of the moment: What effect will the sub-prime mortgage disaster have on the whole economy? Sub prime mortgages created in 2006 might end up resulting in more defaults than any previous year, according to studies held by financier bank UBS. About 8% of all loans created this year are 60 days of more late, up from 4.5% a year ago. Foreclosure numbers have doubled in the past year as well.

The fallout will be most ruthlessly felt by minority and fixed income home buyers and owners who will encounter trouble in refinancing adjustable rate loans that they can no longer afford. Those hoping to buy homes with a small down payment or none at all could also be forced to accept higher interest rates and may not be able to simply declare their income without providing documentation such as tax papers and check stubs.

Article Source: http://www.lifeweightloss.com

Working in both Austin and Houston Texas, Chandler Smith is a knowledgeable real estate expert. He manages Houston Home Realtor along with Dallas Appraisals ©

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