Many homeowners and financial consultants have been trying to reassure themselves that the worst is now over in terms of the mortgage crisis that has been ripping through the United States.
After all, the government has already stepped in with recovery packages, and the economy has shown some weak signs about getting back to normal after a turbulent time. Unfortunately, the bad times are not yet past, and more mortgages are now in danger during this still unstable economic period.
The initial wave of foreclosures that resulted from families defaulting on their mortgage payments primarily hit the sub-prime market. Within this market, notoriously unstable, so many foreclosures in such a short amount of time led to many lenders becoming insoluble and either selling their assets to larger organizations or relying upon governmental assistance. The sub-prime market, which provided loans to individuals with less than perfect credit under terms that may have been attractive at first but became unmanageable, was decimated in recent months.
The prime mortgage market was thought to be largely untouchable by the goings-on in the sub-prime arena, but that is now proving not to be the case. A prime rate mortgage, where money is lent to individuals with good credit, reliable payment histories and adequate assets, is typically composed of traditional loans, such as 30-year fixed-rate mortgages. Whereas the sub-prime market was affected by fluctuating interest rates where consumers may pay differing amounts every month, traditional mortgages are set up to provide steady payment plans over time. And whereas the sub-prime market often demanded balloon payments after an initial time period, necessitating refinancing often at terms even less attractive than those originally set, the prime rate mortgage market again provided stability over a long period of time with set terms.
Unfortunately, the overall instability of the financial market is now making it rocky for consumers who have prime rate loans and traditional mortgages. For families in homes worth less than $417,000, the number of loans defaulted upon has nearly doubled versus a year ago. As consumers are spending more and more money at the gas pump and on home utilities, it is become harder to meet monthly financial demands such as mortgage payments. For homes worth more than $417,000, the number of loans now in default has nearly tripled. Those loans, granted to families whose prior financial status showed that payments were within their reach, are now proving to be harder and harder to keep up with.
And the hardest hit demographic at all in the continuing mortgage crisis are those families whose prime rate mortgages are very new – entered into in 2007 or 2008. Although it may seem hard to believe that they could have problems meeting their obligations so soon after making a home purchase, it is likely that the overall economy is simply drastically affecting what were previously well thought out budgets and making life far harder for the average family. Worse yet, home prices have dropped drastically since the beginning of the home loan crisis, and so families are finding that selling and seeking other housing options may not end their financial woes, as their house may now be worth less than what they owe on their mortgage.
It is clear that the crunch in the housing and mortgage markets will continue to last for quite some time. Until the economy as a whole begins to stabilize, this area will continue to be volatile.
