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Circles, Dots and Mortgages

What the hell is this? My kindergarten drawing of what happened to the mortgage industry and why so many homes are in foreclosure or heading there.

The black dots represent the relative amount of people who have/need a mortgage.

The gray circle represents the size of the pool of available mortgage programs prior to ~August 2007, i.e. the sub-prime and Alt-A market.

The white circle represents the size of the pool of available mortgage programs today going forward, i.e. Conforming and FHA.

The gray circle has since evaporated. No new sub-prime or Alt-A loans available.

There are far less people who fit into the white circle.

That leaves a bunch of black dots that cannot get a mortgage anymore.

If you're a black dot that has a sub-prime or Alt-A ARM and it adjusts for the worse, dont have the credit/financial strength to qualify for a Conforming or FHA loan (fit in the white circle), your stuck. Pay the higher monthly payment, sometimes as much as 50% higher, or lose the home to foreclosure.

Thats leaving a bunch of houses empty.

End of story.

Posted by Jeff Corbett on 01/30/2009 09:42 PM

Comments (9)

Mortgage Programs in the Mortgage / Finance Channel

mortgage meltdown, credit crisis

Originally posted at: The XBroker: Circles, Dots and Mortgages

9 Comments on Circles, Dots and Mortgages

JAN

Thank you for sharing the story of the dots. I kept staring at it thinking this was some type of Rorschach Test and I was going to get some ephiphany out of it -- by staring blindly at the dots. But, I had to read your article, and there was a quasi-ephiphany.

I just wish the buyers could have figured out their budgets prior to . . . well, becoming a black dot in the gray circle. Plus, I know a ton of agents and mortgage brokers who played the system, buying, flipping, re-financing with "equity" cash outs.