Subprime loans are getting all the blame right now, but it seems to me that the core problems in real estate are the prices. All of the "flipping" of the last several years created artificial demand in the market place resulting in super inflated prices. The market is beginning to correct with a "real" demand that will in turn force home prices down to levels that reflect true market value. Once home prices correct to levels that are more in line with incomes we will see a stabilization in the real estate market. My next question, where's the bottom?
2007-03-13 09:38:54 · 8 answers · asked by ashtonk 1 in Business & Finance ➔ Renting & Real Estate
I don't think so, they are a niche product that was created to fill a demand. The real estate market never was created for day traders. Rising or lowering market values once a loan is funded do not adjust to suit the spending habits of the borrowers. Guidelines were stretched but good financial advice rarely if ever was given to borrowers of hybrid type loans. Loan officers also swerved many into bad loan products for their borrowers to make extra rebate. The loans themselves aren't as bad as the ones selling them in most cases. Another issue is while it is easy to pick on sub-prime loans due in part to their typical poor credit scenario borrowers that would likely default on any type loan. A huge segment of the default market isn't sub-prime at all. It is the jumbo loan market and all the neg am loans that are starting to become delinquent. Another issue is that of Real estate agents overselling people into more house than they need, or can truly afford. In those cases a option arm is often their only hope of closing escrow. The shame is that many will lose their dream home once their loan starts to adjust up. In other cases it is just people that have no shame that know they wont make their payments but borrow anyway. I have seen more 1st payment defaults in the last year than in the last decade. I process over 200 notice of default filings per week and have analyzed pre foreclosures for over 20 years. The seasoning on loans going into default is at an all time low. Lastly I think our own federal government has a bit to do with this as well. They enticed rates to go low so people could take out their equity to keep this economy going. Most that have refinanced have done so to not really lower their mortgage payment as much as to just lower their total payments. Now they are broke and overextended again with no chance of digging out of their debt trap. I know theres a few more reasons but in the big picture I really think sub-prime loans are just an easy target due to the poor credit and spending habits of the niche they were created for.
2007-03-13 18:45:24 · answer #1 · answered by Myron 4 · 0⤊ 1⤋
Yes the problem is the sub prime loan, first there was Adjustable rate mortgages that let people with good credit into the market, lots of them created a demand for housing that made houses go up, with house prices rising others wanted in before it was too late, so ARMs with no money down happened if you have a good job, more pressure on housing so prices rose. People could see house prices rising faster than inflation so they bought spec houses. Lenders had lots of cash so they Lend at low introductory rates, or 125% financing, that would be adjusted to market rates in 3 years, then came loans based of stated incomes, not verified incomes.
Then negative equity mortgages and then........The interest rates started being adjusted...instead of 3% interest it was now 6 1/2 and marginal people couldn't pay, defaults happened and mortgage companies started having losses, Some went out of business, other tightened their rules. When marginal people came up for mortgage renewal, they didn't qualify for the loans, no money, they lost the house, Many houses put on the market caused the price to drop, Higher qualifications needed to get a loan, slowed demand, Prices are dropping, there are a lot of loans yet to be rationalized of the next couple of years, Too many people were encouraged to buy houses when they couldn't afford it, the normal mortgage rules were ignored, the chickens are coming home to roost
YOU AIN'T SEEN NOTHING YET.
2007-03-13 10:04:54 · answer #2 · answered by bob shark 7 · 1⤊ 0⤋
I disagree, first, many of the subprime loans should have never happened. There were a lot of crooked deals going on with L.O.'s cleaning credit legally etc. Many of these buyers with (former) bad credit dont change their bill paying habits just because they are homeowners.
Flipped homes get valued based on what other homes in the immediate market area have already sold for, so the inflated thing doesnt make sense. When a house is bought, that IS demand.
Stabilization is from the market slowing down, in many markets there has been an extreme shortage of inventory and the pricers simply went up. Now that the market is slowing, prices are more competative and are dropping- its that simple.
2007-03-13 09:45:43 · answer #3 · answered by Mark P. 5 · 1⤊ 0⤋
As a Mortgage Broker from Alberta, Canada I can give you the Canadian point of view. Here in Alberta we have a superheatd economy driven by the Oilsands. Property prices in Edmonton Alberta increased by 52% last year! This price increase was not based on one factor. It was driven by:
1) Low interest rates, longer amortization
2) Higher cost of materials & labour for new homes
3) Dwindling servicable lots
4) High influx of internal/external immigration
5) High employment
So many people were forced to use the "B" lenders to qualify for a home. Not all people who use the "B" lenders are bad payers. Some have undeclared income, self employed and write off most of their income or are great clients but want to qualify for a larger loan. the "B" lenders are simply supply what the market demands. That's why in Canada many "A" lenders are opening up sub prime lending branches.
2007-03-13 10:06:15 · answer #4 · answered by Anonymous · 0⤊ 0⤋
I am a Mortgage Banker. Sub-Prime will grow in the next few years. House prices will be going down. The 50 yr mortgage will be the hottest product ever. People will be able to finance a hose that is more expensive with less of a payment due to having 50 years. That is a breeding ground for sub-prime. When poor folks or poor credit folks hear that they can afford a house that last year was out of their price range, and their income has not changed, they will jump on it.
2007-03-13 09:49:40 · answer #5 · answered by bolt1 3 · 0⤊ 0⤋
Goog old greed is actually to blame. Subprime loans gave people an oppotunity to get a home that would never have gotten that chance before. It was then greedy for them to continually refinance and take cash out of the home to spend on things they couldn't afford. (of course bad loan officers were all to eager to help) They eventually took out so much that they could no longer afford payments. Then when values quit going up they could no longer cover themselves. Now subprime lenders are getting strict, and they will be forced to sell or lose the home. Unfortunately, now so many people who could have gotten homes will again never qualify for loans.
2007-03-13 10:00:14 · answer #6 · answered by Ron B 3 · 0⤊ 0⤋
Sub prime lenders are to blame. They are the one who gave money to "flippers", who would have not done it otherwise.
Bottom maybe soon, but recovery far far far away
http://www.letsgobble.com/
2007-03-13 09:49:14 · answer #7 · answered by chase11209 2 · 1⤊ 0⤋
depends where you are. fasten your seatbelt.
2007-03-13 09:43:42 · answer #8 · answered by Cardinal Rule 3 · 0⤊ 0⤋