The Increasing Financial Difficulty For Home Owners - What's Next?

                                                                                         

The writing has been on the wall for a good while, yet many have been reluctant to read what it says. Many residents of the United States are getting deeper into debt. Part of this debt likely comes from the cost of owning a house. For a larger segment of homeowners, the cost of home ownership is forcing a tough situation into an impossible one; creating a “foreclosure crisis” that will likely last quite some time.

Several months ago, current data released by the Government are showing an alarming growth in the rate of foreclosures. In some areas, of all home owners who were extended sub-prime loans, the rate of default is as high as 14-20% when 4-6% is considered “healthy”.

This data has been all over the news — the stock market has been in upheaval. Sub-prime lenders traditionally specialize in extending financing to borrowers with credit issues, unable to verify income, job status or other factors that make them a poor fit for conventional loans. In the last year, many major players in the sub-prime market have sold off operations or in some cases simply closed their doors and gone out of business. Just as their borrowers were unable to afford the escalating home ownership costs, many sub-prime financial companies found it impossible to absorb the rate of default we are now seeing.

The major issue doesn’t stop with the sub-prime market. Even traditional lenders are tightening purse strings and placing more scrutiny on the loan approval process. This makes us wonder: how did this problem with foreclosures ever happen in the first place?

A good deal of blame can be laid at the feet of the homeowners themselves. In this age of "big is best" many Americans see a large home as an indicator of success. This pushes many buyers into trying to buy a larger, more expensive home without enough thought to the affordability of one. Often buyers push how much they can afford and end up in a difficult situation or worse.

Blame can also be laid at the feet of some financial professionals. Who is better informed as to how much house debt a borrower can afford? The current debt-to-income ratios are either being ignored, or the types of loans that lenders are selling are poor choices. Loans like 28/2 and 27/3 loans with fixed teaser rates that adjust after 2 or 3 years with a balloon or margin are just a few of the loans that have created difficulties for home owners.

Of course the resolution of all of this will be better qualified and better educated homeowners but did things really have to go so far? We've seen foreclosre problems hit most of the large regions we work including St. Charles real estate, Naperville real estate and Yorkville real estate. Frankly, I sometimes think they did. Lately it seems like it takes a big shock to get some things to go right. In the mean time, if you are thinking of purchasing real estate in the next few years, it’s important that you start talking with your local REALTOR or financial professional and make sure your finances and credit scores are in order before you continue with applying for a loan.

About the author:
Eric Rogers is a full-time agent with Century 21 Pro-Team in the Fox Valley.
http://www.yorkvillerealestate-il.com
http://www.bataviarealestate-il.com

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