Subprime Mess Hits Home
There are numerous advantages to owning your own home. After all, it provides you with a safe, secure place to live. It tends to be a wise investment—an investment you might be able to draw upon in your senior years. It can also give you a tremendous sense of accomplishment.
So it should come as no surprise that many people have been putting themselves at financial risk in order to purchase a home. They were willing to take out loans at adjustable rates to finance their dream.
However, in many cases, the dream has become a nightmare, courtesy of the subprime crisis. Many people with shaky credit histories were extended mortgages that they simply could not repay. As a result, numerous homeowners nationwide have defaulted, bringing about the worst housing crisis in 16 years. In some cases, individuals have been forced to declare bankruptcy as a result of the financial troubles brought on by the purchase of a home.
According to the Mortgage Bankers Association, during the 3rd quarter, the foreclosure rate increased to a record high 0.78%. Meanwhile, the delinquency rate for mortgages shot up to 5.59%. That’s the highest percentage in 20 years. The crisis appears to be most acute in metro areas in California, Florida, and Ohio.
However, the situation is not quite as foreboding in Texas, where home prices continue to rise. As a result, Texas homeowners who hope to sell their houses or refinance are in a much better position than homeowners in other areas of the country. Still, even in Texas, prospective home buyers are having a tougher time obtaining a mortgage. They’re also seeing somewhat of a downturn in the residential home market.
About 14% of mortgages in the U.S. are characterized as subprime. About 6% are in the category of near-prime. Near-prime loans are those home loans that are extended to individuals who cannot fully document their income or cannot make down payments.
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