Subprime Meltdown Not Only Felt by Homeowners in Midst of Foreclosure Crisis!
A recent CNNMoney.com story on how quickly a foreclosure on property may become final ultimately reveals the importance of knowing the foreclosure laws in your state, especially when considering the nature of the current foreclosure epidemic.
Subprime mortgages have been a major contributor to the current foreclosure crisis in the United States.
As interest rates on subprime mortgage loans have increased significantly, many American homeowners have found it difficult to pay their monthly mortgage payments. Consequently, many homeowners have been sent to the edge of foreclosure.
And with the struggles of the subprime mortgage market, more lenders have stopped offering certain loan programs. In some instances, lenders have completely folded and gone out of business. Specifically, dozens of lenders have closed shop in the last year and a half.
Here are just a few examples of mortgage lenders feeling the heat:
• New York lender American Home Mortgage recently filed for bankruptcy.
• Aegis Mortgage has stopped taking loan applications and cancelled funds for pending loans that were made through loan brokers. This Houston-based lender is primarily in the subprime mortgage market.
• While it did not close down like other lenders, Ohio-based National City Mortgage recently announced that it was "suspending approval" of new home equity loans and lines of credit. National City Mortgage is one of the top 10 home equity loan lenders in the nation!
So what accelerated this subprime meltdown?
When default rates recently began to kick in on subprime loans for people primarily with less than stellar credit histories and other financial red flags, these homeowners found it difficult to keep up with their new and higher monthly mortgage payments.
Many homeowners simply haven't been able to pay their monthly mortgages and have significantly fallen behind on them. With the lending companies not receiving these payments, their investors have naturally worried about not getting the financial returns that they envisioned on the loans that they were backing.
Investors have thus put the pressure to some lenders by making them repurchase "non-performing" loans or simply stopping all funding. Consequently, some lenders have been forced out of business.
But it's gotten worse for those investors, whose nerves were even more shot when default rates climbed among "Alt-A" loans given to people who had to state but not document their income. Investors have gotten to the point that they are extremely reluctant to buy mortgage-based securities.
What has this meant for prospective home borrowers? Well, with mortgage lenders struggling, higher interest rates and changing lending criteria have become more frequent. It is now more difficult to get 100 percent financing and to put 10% down on a home purchase as in the past.
Many prospective homeowners have thus taken a "wait and see" approach with the market and held off on buying homes. Homeowners have also held off on refinancing.
Combine this homebuyer skepticism with the fact that foreclosure levels are reaching unprecedented heights in the country, and the failure and wide-spread impact of subprime mortgages is especially apparent if it wasn't already so!