Mortgage Crisis

It was only a matter of time...

Home > Foreclosure Crisis

Clearly Defined
The current housing market turmoil was triggered primarily by an inordinate amount of mortgage delinquencies from the part of home buyers who have purchased their properties prior to the burst of the real estate bubble.

Historically, most of these recent home buyers did not qualify for a loan due to their debt obligations, low income or poor credit. However, during the peak of the subprime real estate market, everyone miraculously qualified for a home loan, regardless of their financial status. Programs such as NINA (No Income No Assets) and "interest only" and LIBOR based loans were created so banks, agents, mortgage brokers, appraisers, title companies and all others involved in a home purchase could squeeze as much profit from the booming market as possible. As Real Estate Agents and Mortgage Brokers tweaked the numbers to get anyone approved through no doc/no income check loans; appraisers faked values to get the loans approved making 100% LTV (Loan-To-Value) seem like 80%. Buyers either by naivete or seduced by the low monthly payments were placed into homes that they would eventually not be able to afford.

And then it happened...
80% of all loans issued during the Real Estate boom were ARMs (Adjustable-Rate Mortgages). When rates ticked up and house prices began their steep decline, refinancing became difficult. Homeowners were now stuck with the new high interest rates as they were unable to bootstrap paying their mortgage by taking out yet another loan against their home. Foreclosure rates all over the country started to climb. Industry professionals who had milked the cash cow 'til it ran dry, disregarding the inevitable, seemed surprised with the collapse of the housing market.

So who's at fault?
The reality is that although home buyers should have been more aware of what they were getting into, the Real Estate professionals who facilitated these purchases and knew all too well that high interest rates keep home prices down, should have guessed what happens when the interest rates fall below Prime.