During the early part of this decade their was a real estate boom and now as a result, their are a record number of people losing their homes.Was it inevitable that it would end up this way, or is there a way that this could have been controlled so that their would not this massive fallout?
The problem was not what the homes sold for...that is where people are misunderstanding what is wrong with the economy. It's that the MAJORITY of the loans were appoved under adjustable rate mortgages, especially in subprime. So what happened, was that people's interest rates kept going up, taxes, insurance, and the payment kept going up...but their income DID NOT. Doesn't take long before you can't pay your bills. Stated income loans and no doc loans were really not the source of it...some, but not the main source...it was with adjustable rate mortgages being given to people that wanted to gamble with the market, buy homes that they could not afford...and when you gamble, sometimes you lose. That is what you saw happened. Like for me...my primary residence and ALL of my rental properties are all under fixed rates...my income has actually decreased with the mortgage mess (but has recently picked back up)...I am not having the financial problems that most of my fellow Realtor/investors are because of the fixed rates on my properties...because I always knew what I could afford and always knew how much money I would make. I have landlord friends who's rate has adjusted HIGHER than the lease their tenant is currently in....so the landlord is losing money each month, but there isn't anything he can do because the tenant is mid-lease....it's a two way contract.
Of course it was preventable. People should not have bought homes they could not afford. Taking on mortgages that were 50% of their income is deadly. Using the equity in their home for vacations, credit card debt and purchasing cars was and still is a formula for foreclosure. The other 80% who used common sense and good fiscal advice are not having a problem making their payments
I remember the day Clinton pointed his finger and said I want every american to own a home After that, deregulation went rampid. Interest only loans sprang up, followed by ARMS, options, and variable rates. No controls whatsoever. People were left on their own to read the fine print or their mortgages - some could not read - obviously. It was in plain black and white that the interest rate could triple their payment - maybe they didn't want to read it. /
