The Sub Prime Debacle

The latest big real estate news is the rising rate of foreclosures in our country. The latest-latest big news is how lenders are pulling commitments out from underneath buyers- sometimes hours before closing is to occur.   It is very unfortunate to see this happen, for obvious reasons.  Some pundits believe we have seen only the tip of the iceberg.  Here are my feelings about why this is happening:

  1. Lenders are under tremendous scrutiny for approving marginal buyers- many of whom should not have been approved.
  2. Many lenders have convinced buyers to get a 2nd mortgage, an “80-20” for 100% financing.
  3. Many buyers have purchase homes way above their price range, then gone out and maxed out credit lines for new furniture, accessories, home improvements, etc.
  4. Along the same lines, many buyers have bought what they “wanted”, not what they “needed”.  This case can be argued for days.
  5. The adjustable rates on these ARMS have increased.
  6. Over-zealous buyers are not finding their earnings increase as they had hoped.
  7. Prices have dropped, leaving less equity for homeowners. This is where Help-U-Sell does their best work, since our fee is much less than a 6% fee.

Sub prime is a term for buyers with less than great credit.  If you are not sub prime buyers, make sure to keep it that way.  Make sure to work with a credible lender, and perhaps get counseling before you buy from an accountant, a financial planner, and a good real estate agent.  Plan before you go shopping!

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