The more informed buyers have known for a good while, yet many have been refusing to read what it says. Many home owners are finding themselves getting deeper into debt. Part of this debt likely comes from the expense of owning a home. For a rising segment of homeowners, the financial burden of owning a home is forcing a difficult situation into a dangerous one; creating a “foreclosure crisis” that will likely last several more years.
Several months ago, current data released by the Department of Housing and Urban Development are showing an alarming upswing in the rate of foreclosures. In some areas, of all home owners who were extended sub-prime financing, the default rate is as high as 14-20% when 4-6% is considered “healthy”.
This information has been all over the news — the financial market has been in upheaval. Sub-prime lenders are usually experienced in extending financing to borrowers with credit issues, unable to verify income, job status or other factors that make them a poor fit for conventional loans. In the past few months, many major players in the sub-prime market have sold off operations or in some cases simply closed their doors and gone out of business. Just as their clients were unable to afford the escalating costs of living, many sub-prime lenders found it impossible to absorb the rate of default we are now seeing.
The major issue doesn’t stop with the sub-prime market. Even traditional banks are tightening purse strings and placing more scrutiny on the loan approval process. This makes us wonder: how did this mess ever happen in the first place?
A good portion of the resons can be laid at the feet of the homeowners themselves. In this age of "housing glut" many Americans see a large home as an indicator of success. This pushes many buyers into trying to own a bigger, more expensive home without enough thought to the financial burden of owning one. Often buyers push the levels of affordability and end up in a difficult situation or worse.
Blame can also be attributed to some financial institutions. Who is better informed as to how much debt a borrower can afford? The current debt-to-income ratios are either being ignored, or the types of loans that lenders are offering are poor choices. Loans like 28/2 and 27/3 loans with fixed teaser rates that adjust after 2 or 3 years with a balloon or margin are just a few of the loans that have created difficulties for home owners.
Of course the ultimate result will be better qualified and better educated borrowers but did things really have to go so far? We've seen foreclosre problems hit most of the large regions we work including Batavia real estate, Plano real estate, St. Charles real estate and Yorkville real estate. Frankly, I sometimes think they did. Lately it seems like it takes a big shock to get some things to go right. In the mean time, if you are thinking of purchasing real estate in the next few years, it’s important that you start talking with your local REALTOR or loan officer and make sure your finances and credit scores are in order before you go forward with applying for a loan.
Eric Rogers is a successful real estate agent with Century 21 Pro-Team in the Fox Valley and a local expert on
North Aurora Real Estate and
Aurora Real Estate
