I think the biggest factor is people were getting into loans without much thought of what would happen down the road, because they assumed their homes would always go up in value.
I mean I purchased a home in 2004. The first thing the lenders offered me was 2 year adjustable rate. At that time, mortgage rates were literally at historic lows. My automatic response was, "if I can't pay for a fixed loan now at the lowest rates ever, then I can't pay them 2 years from now when the rates go up."
I spent a fair amount of time searching for financing I could afford, and making sure I could actually afford the payments plus insurance, taxes and maintenance.
I think a lot of people spent little time thinking about the "what ifs" and just focused on getting in the home.
Now it's 2 years later for most people, and their ARMS are adjusting significantly upward, and they feel that they were tricked because they spent no time at all analyzing the most important financial decision of their lives!
Will the industry cover? Sure it will. People's incomes need to catch up to the bubble prices, and prices need to slide a little. And population needs to catch up to the growth in population. By 2009, I think it will return back to historical norms.
2007-09-04 18:02:41
·
answer #1
·
answered by Uncle Pennybags 7
·
0⤊
0⤋
There were two groups involved. One was speculators, aka gamblers that were flipping houses till people stopped buying houses. 30% of the defaulted mortgages were from these people. They aren't living in those homes so it's not like they are going to be homeless.
The second group was the teased group. They wanted a home and didn't do the math or read the fine print. As long as the interest rates didn't go up in the next 15 to 30 years, they were safe. Well the rates did go up. Since many of these put little money down, they aren't going to be hit that hard. They might have put down $10,000 or less rather than the $128,000 they would have needed for a fixed loan in my area.
There is a third group, but they will always be around. These people were, through no fault of their own, suddenly unable to pay the bills. They got sick, laid off, ect.
The industry will only really recover if wages go up. Since they aren't going up, there is no real money to drive the prices back up. The only way to drive the prices back up, is to create another bubble. This will haven soon after a recession when the feds drop the prime rate low enough for a recovery and threfore loans would be easier to get.
2007-09-05 04:42:23
·
answer #2
·
answered by gregory_dittman 7
·
0⤊
0⤋
Poor risk management policies and greed, really. Most of the people that made up the sub-prime market would never qualify for a loan - so called NINJA loans. Would you loan money to someone with No Income, No Job or Assets? That's what these subprime lenders did, thinking there was no bottom to the industry. Almost every bank had some interest in subprime lenders so don't let them say they didn't.
What will happen (has happened) is that the risk adjusted rates for lending have gone up dramatically so it will affect all lending in the form of higher interest rates.
It should take 2 - 3 years to stabilise interest rates and this will primarily be because of investments coming out of China and India into the international lending pool.
2007-09-05 01:02:38
·
answer #3
·
answered by Anonymous
·
0⤊
0⤋
the industry will recover
but it will be a a shadow of what is was and most likely more regulated as it should be
also don't be too surprised if Walmart , the 800 lb gorilla steps into the ring to do home loans
greed cause the crisis
so i am happy to see all the layoff from the very same people who started the mess
we will probably end up in a recession
2007-09-05 02:00:41
·
answer #4
·
answered by Anonymous
·
0⤊
0⤋