It is becoming apparent that we will soon know what the government’s response will be to the growing real estate mortgage crisis. In this upcoming election year, nobody wants to appear insensitive to homeowners possibly losing their homes, so many knee jerk reactions are being formulated. How will a plan of this magnitude even become close to being fair?
As you can see from the chart below, many adjustable rate mortgages are about to reset and foreclosures are expected to increase as these loans adjust to higher interest rates. Adjustable rate mortgages have been around a long time, and we have never experienced this amount of properties that are in some stage of foreclosure.
Why Are So Many Homeowner’s in Distress?
What haven’t been around a long time were subprime loans. The chart indicates the majority of these loans are the high risk loans which are about to increase. Plus the industry introduced new products such as the option arm allowing borrowers to make the smallest of monthly payments. So when you provide 100% financing to someone who has less than ideal credit, and then allow them to make the minimum of minimum payment’s you have the recipe for disaster. It’s like providing an all you can eat buffet at a weight watcher’s meeting!
Notice how subprime loans diminish as part of the overall lending portfolio. Someone finally said “Oh my God, What Have We Done?”
About Doug Willis
An honorable mention…
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