September 2007
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In this Issue:
Get Excited! No News Here About Michael Vick!
Mortgage Crunch Impact Spreading (Please feel free to post your comments at the bottom of the newsletter.)
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Mortgage Crunch Impact Spreading
For the past five years, the housing boom put money in the pockets of many lenders, brokers, real estate agents and investors, and granted easy mortgages (relatively speaking) to homeowners with both good and blemished credit. But as home prices decline and interest rates climb, the cracks in the once solid housing markets are beginning to widen.
Loans with adjustable rates, payment choices (interest only, etc) and loose requirements, have trapped many borrowers in too-high payments with very few options for escape. Some have taken on second and third jobs, depleted savings and retirement accounts, sucked out all the saved college fund savings, and wrestled with lenders to stave off foreclosure. Those who have failed have seen (or are seeing) their homes sold at auction.
Many of the victims are subprime borrowers — those who don't qualify for market interest rates because of blemishes on their credit record. The Center for Responsible Lending, a non-profit organization that works to eliminate abusive practices in home mortgages, estimates that 2.2 million subprime home loans made in recent years have ended or soon will end in foreclosure. The Center says that loans giving borrowers a fixed payment for the first two or three years before the monthly obligations adjust sharply upwards — (aka "exploding ARM's") — have been particularly troublesome.
Many prospective home buyers are having trouble getting mortgages now because of the changing market. Others were sold on more house than they should have qualified for (under standard lending requirements) and have piled up huge loans based on the inflated value of their property while not fully understanding the interest rates they would have to pay.
The key thing all home owners need to remember during this whole crisis in the mortgage industry is, don't be afraid to contact your lender and tell them you're having trouble making the payment on your home. Where the lender is solvent and trustworthy, they are more than willing to help you keep your home. It costs them more (in the long run) to go through foreclosure proceedings, than it does to try and work with you to help you keep your home. But not contacting them at all is the worst thing you can do. Don't be ashamed to ask for help if you need it.
How Credit Scores Affect Financial Situations
Your credit report contains a history of your credit cards, car loans, mortgage loans, and all other long term debt or obligations you may have taken on. It shows any late payments, how late they were, ie 30 days past due, 60 days past due, etc. Any qualified lender will have access to this information as soon as you apply for credit with them.
The credit reporting agencies do their best to keep accurate records, but errors do happen, and mistakes can creep in to your credit report. This is the main reason you need to stay on top of your credit report. These errors on your credit report can have a negative effect on any future financial matters you are involved in if left uncorrected.
Some of the more common errors include loans that have been repaid still showing as active, as well as long-cancelled credit cards still showing up as active in your credit file.
By getting copies of your credit reports from all three major credit reporting agencies, you'll be able to review them for any errors or inaccuracies. Your file can be corrected, however, it's not as easy as one may think.
You'll need proof of the error, which you'll need to send by registered mail to the credit reporting service, along with the details of the error. Ask them to correct the data. By law, they have to investigate any errors reported to them.
Recent legislation has made it so you can obtain one free copy of your credit report annually. As long as you don't request more than one report per year, you should not have to pay for it. So beware of websites or direct mail that try to SELL YOU a copy of your credit report.
The three main credit reporting services in the U.S. are:
Equifax: PO Box 740241, Atlanta, GA 30374
TransUnion: PO Box 2000, Chester, PA 19022
Experian: PO Box 2002, Allen, TX 75013
The Best Buyer's Market?
The subprime loan crisis has produced the highest number of foreclosures since the U.S. Savings and Loan Fraud Crisis of 1989 providing the largest inventory of bargain homes in years in many metropolitan areas of the country.
The oversupply of homes and condos is having a major impact on some local economies in some states. According to real estate analysts, it will take years for markets in many areas of the country to return to healthy levels. Investors are flocking to some markets in these states to make purchases of foreclosures.
New home starts have declined in many areas as builders reduce inventories following the largest construction boom of new homes in the nation's history. Housing Predictor forecasts more than two million homes will be foreclosed in the U.S. through 2009, which will account for the highest number of foreclosures since the Savings and Loan Fraud scandal.
All is not gloom and doom nationwide however. Eighteen states are experiencing local housing markets that are accelerating with appreciation. Another six states are projected to have market appreciation by later in the fall.
Historically, real estate markets throughout the U.S. experience seven to ten year cycles. It commonly takes two years for markets to stabilize after a period of great appreciation, and the majority of housing markets have now completed that period of time.
The next 12 months (according to the Housing Predictor analysis) provide the window to obtain the lowest prices possible. The national real estate slowdown is not forecast to worsen or last longer than through mid-2008.
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An increasing number of homeowners and prospective homeowners are getting caught up in the mortgage crunch that is claiming victims from all income levels and demographic groups. Many are trying to get their loan terms re-negotiated but are finding that it's very difficult in a tightened market.
It is crucial that you understand how your credit score affects your financial situation, especially if you've ever had financial problems in the past. If you plan to apply for a mortgage, this is what the lender will look at first, so you need to be familiar with your credit report.
According to Housing Predictor, the best time to buy property in many of the nation's housing markets will be over the next 12 months. Housing Predictor forecasts more than 250 local housing markets in all 50 U.S. states.
