Can someone please explain the current mortgage crisis we are going through?

Question

Why are so many homes being foreclosed on? What is going on? Thanks.

Answer 1

it used to be that mortgages were 30 years, with the same interest rate for that whole time, and people with marginal credit couldn't get mortgages. well, in the last few years some mortgage companies began offering mortgages with complicated terms so more poeple could buy expensive houses. a lot of people bought houses they could not afford with adjustable rate mortgages. now their interest rates are going up and they can't afford the (much higher) payments. so there are lots of people desparate to sell their houses to avoid foreclosure, which pushes down the prices and results in a glut of houses on the market.

Answer 2

Sub prime loans are great. Get what you want at a nice low rate. Unfortunatley they're so great that true ones don't exist. What sub-prime means is that you're getting a loan and paying less for it than the company is. So if the company that's doing the mortgage where to extend that rate for the entire life of the loan the company would lose lots of money.

So here's how it works. Lenders went and attracted moderatley qualified borrowers with sub-prime rates that they could afford. What happened after that was either the person was late or missed a payment or the introductory period ended and the rate went way way way up. You then had all these people who couldn't afford their homes anymore and they either try to get rid of them or they got foreclosed.

Answer 3

It’s not a “crisis.” More than anything it’s media hype. Only about 5% of homeowners are affected. Why those 5% are getting so much more press than the 95% of us paying our mortgages is beyond me, but responsibility rarely makes the evening news.
http://money.cnn.com/2007/09/06/real_estate/mortgage_delinquencies_climbing/index.htm

Issues at hand:

-Borrowers took out mortgages for more than they should have and/or for terms they did not understand (adjustable rates or ARMs). I don’t 100% absolve lenders from blame, but I do feel like too many borrowers blindly signed for things they didn’t understand.

-Home equity lines of credit allow owners to cash out their equity. The whole point of a home is to buy a one price, live in it for several years and turn around and sell for more than you paid. If you keep taking out the equity, it’s like constantly refinancing your mortgage so that you owe the current market value instead of your original purchase price. Do that enough times, and you can easily owe more than your house is currently worth.

Answer 4

because when people were signing their mortgages they were signing what's called "balloon" mortgage rates. which can inflate over time causing increased monthly payments which is becoming harder and harder for people to afford.