The Problem Of Bad Credit Mortgages Essay

However, hope might be on the horizon for the victims of the mortgage disaster of 2007/2008. Home buyers who were foreclosed upon years ago, or boomerang buyers, are beginning to be eligible to buy homes again. While some feel hope after feeling bamboozled by lenders and Fannie Mae and Freddie Mac, some feel anxious and fearful of the thought of buying again. Yet there are lessons that have been learned by the mortgage meltdown. Fannie Mae and Freddie Mac provided a lesson for the

The housing crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.

     The real estate industry is thriving with approximately sixty-eight percent of all Americans being homeowners. With low interest rates, 1st time home buyer down payment assistance programs, and government funded educational opportunities (i.e. the Home Ownership Center of Greater Cincinnati), the real estate and mortgage lending industries will continue to flourish. However, there are some unethical lending practices that are threatening the housing industry as a whole.

In 2008 the real estate market crashed because of the Graham-Leach-Bliley Act and Commodities Futures Modernization Act, which led to shady mortgage lending or “liar loans” (Hartman). The loans primarily approved for lower income and middle class borrowers with little income or no job income verification, which lead to many buyers purchasing homes they could not afford because everyone wants a piece of the American dream; homeownership. Because of “reckless lending to lower- and middle-income borrowers who could not afford to repay their loans many of the home buyers lost everything when the market collapsed” (Tankersley 3). Homeowners often continued to live in their houses for months or years without paying any

The foreclosure crisis that took over the United States a few years ago left many people facing economic hardships. This crisis happened because there was a huge housing bubble that was unsupported by actual home values. The bubble began bursting in spring of 2008 and the crisis culminated in mid-2009. Many lenders went out of business and many home owners began losing their homes. When the government became aware of this problem and began to implement new programs, it was already too late for many homeowners. Those homeowners are not at a point where they might be considering buying a new home. The housing crisis has created new rules, regulations governing the mortgage industry, and has also created a new agency dedicated to consumer protection. This consumer protection agency is called the Consumer Finance Protection Bureau. These dramatic changes have helped to create more responsible lending. The improving market conditions such as low housing costs and competitive interest rates are allowing those affected by a foreclosure to become homeowners again. Prospective buyers have a multitude of programs available to them, so even those with less than clean slate have several options.

The financial crisis emerged because of an excessive deregulation of business operation of financial institutions and of abusing the securitization mechanism in the absence of clearly defined rules to regulate this area in the American mortgage market (Krstić, Jemović, & Radojičić, 2013). Deregulation gives larger banks the opportunity to loosen underwriting lender guidelines and generate increase opportunity for homeownership (Kroszner & Strahan, 2013). After deregulation, banks utilized many versions of mortgage loans. Mortgage loans such as subprime and Alternative-A paper loans became available for borrowers challenged to find mortgage lenders before deregulation (Elbarouki, 2016; Palmer, 2015). The housing market has been severely affected by fluctuating interest rates and the requirement of large down payment (Follain, & Giertz, 2013). The subprime lending crisis has taken a toll on the nation’s economy since 2007. Individuals who lacked sufficient credit ratings or down payments resorted to subprime mortgages to finance their homes Defaults on subprime and other mortgages precipitated the foreclosure crisis, which contributed to the recent recession and national financial crisis (Odetunde, 2015). Subprime mortgages were appropriate for borrowers with substandard credit and Alternate-A paper loans were

Banks, along with other lenders nationwide, have made things tougher for folks who want to buy a house. The requirements for conventional mortgage loans today make it extremely difficult for someone who doesn't have stellar credit to find a loan. FHA home loans are there for people with lower credit scores, yet the guidelines for such loans are a lot stricter than the VA home loan standards.

Once things started to get bad, they got really bad for a lot of families who were given mortgages, who were not properly qualified. There was a major spike in defaults, with

In the early-2000s, Moody’s, one of the leading credit rating agencies in the world, evaluated thousands of bonds backed by so-called “subprime” residential mortgages—home loans made to those with both low incomes and poor credit scores. When housing prices began to fall in 2006, the value of these bonds disintegrated, and Moody’s was compelled to downgrade them significantly. In late 2008, several commercial banks, investment banks, and mortgage lenders that had been

During the great recession of ‘07-’09, the subprime mortgage crisis claimed the homes of 4.8 million individuals who lost their residence to foreclosure while an additional 2.2 million borrowers surrendered to short sale. These victims suffered substantial blows to their credit, with foreclosures and short sales costing them anywhere from 85-160 credit points, according to Jon Maddux, president of Drop Mortgage, Inc. It took years for people to rebuild their lives and finances, but real estate agents, mortgage brokers, and homebuilders are noticing some rather surprising trends. With the country’s economic recovery slowly yet steadily underway, many former victims of foreclosure—repelled by a rise in rental rates and enticed by affordable home prices—have found themselves back in the market. They have come to be known as “boomerang buyers.”

Since the housing market bust, there has been an explosion in the number of federal investigation of mortgage fraud scheme across the country. Mortgage Fraud is a violation of state and

These brokers have neither the credit skills nor the interest to conduct proper payment due of potential homebuyers. Their interest is only in selling the houses as fast as they can. The MBS instruments allowed all financial institutions to transfer the risks to other investors. The dissociation of ownership of assets from risks encouraged poor credit assessment and was fundamental increasing the risks.

Though mortgage lenders in the UK had many more controls in place to help avoid selling these bad

According to the author, the 2007 financial crisis began when banks and mortgage companies used several questionable strategies in order to lure customers into buying mortgages they could not afford. Not only were over ¾th of the mortgage loans made to individuals with bad credit disregarding the risks this would entail but they also

With all of the incentives and mortgage products given so easily to people that couldn’t afford the high prices (including interest rates), many people defaulted on their first mortgages because they were no longer were able to receive the profit from the homes they first intended to flip. “During the first quarter of 2008, nearly 9% of all mortgage holders were delinquent or in foreclosure, the highest rate since recordkeeping began in 1979. Foreclosure filings more than