Planning on selling or buying a home in Raleigh, North Carolina? Concerned about the turmoil in the mortgage industry? There may be good reason for some concern. Things have definitely changed. This article is the first installment in a three part series that addresses this critical issue.
You cannot turn on the news without hearing about rising foreclosure rates and lenders whose future stability is in question. Or worse yet, lenders that can no longer fund client loans at closing. A recent example is HomeBanc, a lender with operations here in our Raleigh market that many of my clients had done business with in the past. Yikes... this is hitting pretty close to home folks! We need a better understanding of what we are dealing with.
Let's start by identifying more exactly this so called mortgage meltdown.
It started back earlier this year with a sharp increase in foreclosure rates. The rate of existing loans that were delinquent also began to rise. As the experts began to analyze the situation, not surprisingly, the bulk of the increase came from borrowers who had marginal qualifying ratios and either financed 100% of their purchase, or did this in combination with an adjustable rate mortgage.
Since that time foreclosures have continued to climb. Some lenders have gone out of business while others have had their future stability publicly questioned. And as usual, fear of the unknown has a firm grip on most everyone who is involved.
So how many homeowners in foreclosure are we talking about? According to Foreclosures.com, 3% of US home owners have lost their homes to foreclosure this year. This represents a staggering 41% increase over 2006. Almost a quarter million properties have been foreclosed on in 2007. It is estimated that several hundred thousand more homeowners are delinquent on their payments.
As a result of this increasing consumer default rate, it has been reported that over 100 lenders have closed. Most notably, however, is the massive tightening of credit standards and qualifying ratios that have resulted. This is what will have the greatest impact on home sellers and buyers in the greater Raleigh real estate market.
What has changed as a result of the credit crunch?