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Current Mortgage Environment

Real Estate Technology with AOVZ.COM

Home mortgage rates are at record lows; however it is quite likely they will be going up soon due to the current mortgage environment. Because of the subprime mortgage crisis the entire financial system across the globe has been impacted. In fact, the crisis has resulted in many failures of huge companies including government sponsored entities as well as mortgage companies and investment firms not to mention tens of thousands of foreclosures. The crisis has escalated over 2007 and 2008; however it began several years ago quite slowly. This financial crisis has not only affected current home mortgage rates, but will surely change the face of lending forever.

Current mortgage rates
Mortgage rates are currently quite low making this a perfect time to buy a new home. However, buying a new home is more difficult than ever because lenders do not have the money to lend and/or they have such high lending requirements that the vast majority of potential borrowers do not qualify. Unfortunately, this combination will affect the mortgage environment even more because when banks do not lend money not only does the housing market stagnate, but it also affects daily business. In fact, the fact that banks are wary of making loans these days is unlikely to change in the near future as it is predicted billions of dollars in credit card debt will also be defaulted on soon.

How did we get here?
Those wondering how the current housing market arrived at such a state should understand that the subprime and adjustable rate mortgages were at fault for the busting of the US housing bubble. The rate of default on these loans was staggering and looking back it is easy to see where trouble was brewing. However, at the time banks had lax lending standards and were approving practically anyone who applied for a home loan with very easy terms. What happened is many individuals were approved for loans for homes that they could not afford. These individuals, as well as the banks, were confident they could easily refinance into easier terms because housing prices were skyrocketing and everyone simply ignored the fact that defaults were up and too many people were being approved for loans they truly could not afford. All of this works together to create the current mortgage market that is quite unstable.

Where to go from here
The biggest hurdle will be to get the already gun-shy banks and lending institutions to start lending again. They are too worried to loan large sums for homes when so many defaults have occurred. In fact, some major banks have failed and been bought out by other banks due to their inability to make it through this crisis. However, the only hope for banks to survive is to begin lending again. That truly is their bread and butter and without loans more banks will go under. So, what can banks do in this particularly challenging mortgage loan market?

One thing that has been done in the US is a bailout to the tune of $700 billion. This money will go to shore up the banks and allow them to begin lending again. Of course, in order for banks to begin lending again potential borrowers are going to have to offer some form of protection to the bank in the way of a substantial down payment. Those with excellent credit may be able to qualify for better terms; however most borrowers will find they are required to provide a down payment of 5 to 10% of the home's purchase price.

The home mortgage market is changing on a daily basis and most banks and consumers are hoping the worst is behind us. That is not a guarantee on the financial markets will probably be reeling for some time. However, the credit market has certainly been changed by this financial crisis.


What is a Subprime Loan?  I live in a small rural community where they do Rural Development Loans everyday!  People are getting into homes with 0% down and only the cost of a credit report and appraisal fee.  Last week the credit score requirements went way up, but most of our local foreclosures have been a result of this type lending and of course the price of gasoline tripling and huge job losses also had a little to do with the start of this collapse.  The question is, do we want to help every American become a home owner, or should we reserve that luxury for the wealthy only? We may become a Nation of Renters yet.

Mar 29, 2009 03:07 AM