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6 answers

Personal debt mostly but the economy plays a role in getting them in debt. Also, lack of education regarding credit policies and budgeting.

People bought homes at the top of their personal price range when interest rates were low. Many bought with no money down. Which increased the amount they were financing. So now, interest rates are going up and incomes are staying the same. Gas prices, commodities, and other things are going up too and people just can't seem to stay on top of all of their debt.

2007-04-05 00:49:55 · answer #1 · answered by Jennifer P 3 · 1 0

Mainly personal debt and a lack of education. The economy has gotten stronger since 2002, so we really can't blame that (with a few exceptions).

It is funny that the media is making such a big deal out of this issue. It is like they are surprised by this. Over the past 10 years, the sub-prime mortgage market emerged. This provides people who are high risk borrowers to buy a house with little to no money down. The rate could be 2-4% points higher than on a conventional mortgage, and it would become a variable rate after usually 2-3 years.

Even though most of those rates are now variable, most of them have NOT gone up much. You can't blame the variable rates, much (mortgage rates are just a bit higher than where they were a few years ago).

The main problem is that people overspent. In most parts of the country, new homes are being built at a fast rate. Most new homes being built are not small, affordable houses, but rather they are large houses, with vaulted ceilings, lots of closet space, and in planned communities. These houses are expensive to buy, maintain, and to heat and cool. With people buying expensive houses at high rates, it is only expected that a lot of those loans will default.

People like to blame sub-prime lending on it. Some people like to blame the economy. But the fact is that people bought houses that they could not afford. A few years ago, people got all excited about owning a house. Now, they are paying the price.

Look at these monthly payments (these are just principle and interest, they do not include property taxes, PMI, or insurance):

Buy a $200,000 house at 6% (conventional rate)= $1199.10
Buy a $200,000 house at 8% (sub-prime rate) =$1,467.53

Buy a $150,000 house at 6% = $ 899.33
Buy a $150,000 house at 8% = $1,100.65

If people with bad credit took one year to improve their credit, that could possibly have made the difference between a$200-$300 a month payment. If people decided to buy a more affordable house, then they would have saved another $200-$300. A bit of good money managment could have saved a homebuyer $400-$600 a month ($4,800-$7200 a year). And over three years, that can make the difference between foreclosure and being in good standing.

As you can see, people wanted the big expensive house, and they wanted it now.

And on a side note, this is not the crisis that the media is making this out to be. Remember, many of these people facing foreclosure did not put any money down. They will be forced to move to a smaller home, however, the victims really didn't lose anything of value. They did not lose a down payment, they were already going to pay rent anyhow, and their credit was a mess to begin with. Most of the lenders are going to recoup most of their losses (probably not all) through the foreclosures.

Over the next couple of years, this will pass, and the economy will barely feel a pinch. If anything, people will learn their lesson about personal finances. Hopefully our public schools will take a lesson about this and start teaching personal finances in school.

2007-04-05 08:52:51 · answer #2 · answered by j-man 4 · 0 0

$900,000 has nothing to do with it... people are losing homes for far less than that.

These people tend to think they deserve oh soooooooooo much and want an expensive house to look the part. What I laugh at is that they don't make nearly enough money to handle even the maintenance of a home let along the payments.

Even people who make loads of money and can prove it on paper, simply have a high maintenance lifestyle, meaning they spend more than they should. These so called rich people blow their money so they have no money.

Things do not make you rich... having money making you more money, makes you rich. These people are so far in debt, they have to sell or file bankruptcy. Debt debt debt is what sooooooo many people's lives are based on. I am happy to say that I don't have a mortgage, paid it off in full a few years back and will stay in this house instead of rebuild bigger and better to fit the part.

aaaaaaaaaaaaaaaaagh life is good when you choose to keep your money !!

: )

2007-04-05 12:31:19 · answer #3 · answered by Kitty 6 · 0 0

I personally think it is personal debt. Many people go out on a limb and put all they have into the biggest house, in the best neighborhood and then get in over their heads. I see it happen all the time. Credit and credit cards can get way out of hand and cause us to have a false sense of available spending power. The problem is that all of those bills have to be paid at the end of every month and many people get into trouble that way. Actually, our economy isn't too bad right now.

2007-04-05 08:01:55 · answer #4 · answered by vanhammer 7 · 0 0

Personal Debt. People bought when interest rates on mortgages were low and now they're going up and can't afford it anymore

2007-04-05 07:45:05 · answer #5 · answered by Lauren 1 · 0 0

I feel like it is due to both. Our jobs are going overseas left and right, leaving us with no way to make it.

2007-04-05 07:55:17 · answer #6 · answered by teddy bear 2 · 0 0

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