No doubt you have heard that there are an increasing number of mortgage foreclosures of residential homes and this is adding havoc to the already stressed housing market. However, it is important to note that the problem is limited to one segment of the market – subprime borrowers. “Subprime” refers to borrowers with weak credit and where “creative financing” was used to secure a loan.
In the past 6 years, creative mortgage products - 80/20 loans, no doc loans, 100-125% financing – are about 7% of the loan market, most of which have an adjustable rate of interest. Now that these loans have passed their term of fixed rate (the loans are locked in for an introductory period), monthly interest payments fluctuate. Buyers reported monthly payment increases in double digit percentages.
With home prices falling, new owners who would rather sell than be foreclosed, cannot get enough to pay off their mortgage, creating a short sale.
Default affects 3% of mortgage lenders. It is expected that there will be 1.5 million foreclosures this year and tighter standards in lending.
In the past 6 years, creative mortgage products - 80/20 loans, no doc loans, 100-125% financing – are about 7% of the loan market, most of which have an adjustable rate of interest. Now that these loans have passed their term of fixed rate (the loans are locked in for an introductory period), monthly interest payments fluctuate. Buyers reported monthly payment increases in double digit percentages.
With home prices falling, new owners who would rather sell than be foreclosed, cannot get enough to pay off their mortgage, creating a short sale.
Default affects 3% of mortgage lenders. It is expected that there will be 1.5 million foreclosures this year and tighter standards in lending.
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