The USA housing bubble wasn't something that popped out of a box one day. It was building up for the better part of the decade, but it still came as a shock. The subprime mortgage crisis and the real estate market crash were quickly followed by a severe credit crunch. With loans drying up, consumers stopped buying and the vicious cycle spiraled into the Great Recession of 2008-09. From 2007 to 2010, tens of millions of people lost either their homes or jobs or both.
The roots of this crisis go back to 2001, to the dot com crash and 9/11. This deadly combination knocked the stuffing out of the economy and the only thing people had left to maintain their lifestyles was home equity. Congress deregulated the banks and the Federal Reserve kept interest rates low, thus allowing mortgage lenders to shovel money out the front door to all comers.
The result was that speculators started buying homes just to make a quick buck. Even for ordinary home owners, it was easy to take out equity loans and second mortgages so that they could enjoy the fruits of the housing boom. According to BLS (Bureau of Labor Statistics) data, non-farm payroll employment for residential construction jumped 29.1% from 2001-06. Employment among loan brokers jumped nearly 120% during the same period, and the real estate credit industry grew by 52%.
Speculation fueled by irrational exuberance is what the FED is there for. They could easily have kept it under control by increasing interest rates. Instead, they did nothing until it was too late. Wall St. Was knee deep in derivative products created from these subprime mortgages. The lenders had created mortgage packages graded by the credit ratings agencies and then handed them off to investors.
Private equity funds began using it to setup massive leveraged deals where companies were wildly overvalued and the only security the banks had was these worthless mortgage papers. Everybody was in on the systemic fraud, and share values and home prices kept climbing. When the bubble finally collapsed in 2007, the banks were left mortgages in default and bankrupt companies which had been valued at billions just a year or two before.
By this time, home values had tanked so much that even ordinary people who had nothing to do with the mess found their home loans underwater. From 2006 to 2009, the real estate industry lost all the gains for the entire decade, and then some. Employment in residential construction dropped 36.6% and home loan credit companies started laying off employees so fast they lost 44% of the workforce in the same period.
Faced by a credit crunch and delinquent home owners, the banks panicked and sent out millions of foreclosure notices. Nearly 8 million homes were ultimately foreclosed in 2009-10. Over 10 million homes were still underwater in 2011, poised on the edge. The federal government has now forced the five biggest banks to spend billion to help out everyone who lost their homes due to The USA housing bubble.
Showing posts with label Housing. Show all posts
Showing posts with label Housing. Show all posts
Sunday, July 1, 2012
Sunday, June 3, 2012
3 Common Reasons Your Housing Loan Application Can Be Refused
Unless you are cash rich, you would look to leverage on a housing loan to purchase a home. Getting an approval for a housing is never a certainty. There are many situations where home buyers can have their applications rejected outright by the mortgage lender. When that happens, a lender may inform you of the reasons why your application had been declined or not even give you service call to inform you of their decision.
These are some common reasons that housing loan request are declined by the mortgage lender.
1) Being a guarantor for a relative's loan
One of the most common reason that terms your personal financial position as over leveraged is by signing as a guarantor for another individual's loan. There are many reasons for this to happen. It could be that you nephew needs a guarantor for an education loan, your spouse included you as a guarantor for an auto loan, your dad needed you as a guarantor for a recent investment property loan, etc.
At the point of signing on, it is normal to think that these circumstances will not affect you in any way. But it can have a great effect on your loan applications in future, including your housing loan. Unless you have a high personal income, obtaining attractive housing loan terms can be frustrating.
A mortgage loan is a very significant personal financial commitment, the mortgage lender will be concerned with your personal financial leverage when assessing your application. And because you are a guarantor for other loans, those can be taken into consideration when calculating your personal debt ration. A higher ration can deem your personal financial leverage as undesirable.
2) Negligent on material information
Our personal finances are very private information. As wealth is a symbol of social status, many people may be a little embarrassed about revealing the full details of their current financial position, especially if they perceive their personal credit record as one that is adverse. However do note that a mortgage broker or a mortgage officer is there to help you obtain your desired mortgage. It is their job and they will be delighted to be able to acquire a deal for you that you will be happy with.
Because of the nature of their job scope, they have seen a number of applications and have experience on what to look out for in your application. So when you are probed on personal financial information, be open in sharing them so that an officer will know the best course of action to help you obtain an approval for your housing loan.
Do not think that some information requested is not important. Unless you are the mortgage underwriter, you will have little idea on the assessment criteria required. When possible issues are raised by your mortgage officer, you can get them resolved before processing your application. Working on adverse issues only after your housing loan has been declined may be too late.
3) Outstanding arrears and credit card bills
Because a housing loan is a secured loan, you may be complacent on thinking that it is one of the easiest forms of loans that you can get. You may even think that you personal credit record is of little importance since the mortgage lender should feel save since there is a valuable collateral involved.
That is not the case. Your personal credit record can have great effects on how flexible a mortgage lender is willing to be with you. This is especially so when you are a new customer to the lender. They have not dealt with you before and the only way to fairly judge your financial behavior is to assess your credit record. When it shows that your current auto loan and credit card bills are late by 3 months, it does not reflect nicely on how well you manage your finances. You can be penalized with an outright rejection or offered more unfavorable terms because of the additional risks put on the lender. Always ensure prompt payments on your personal credit facilities at least 6 months before your housing loan application.
These are some common reasons that housing loan request are declined by the mortgage lender.
1) Being a guarantor for a relative's loan
One of the most common reason that terms your personal financial position as over leveraged is by signing as a guarantor for another individual's loan. There are many reasons for this to happen. It could be that you nephew needs a guarantor for an education loan, your spouse included you as a guarantor for an auto loan, your dad needed you as a guarantor for a recent investment property loan, etc.
At the point of signing on, it is normal to think that these circumstances will not affect you in any way. But it can have a great effect on your loan applications in future, including your housing loan. Unless you have a high personal income, obtaining attractive housing loan terms can be frustrating.
A mortgage loan is a very significant personal financial commitment, the mortgage lender will be concerned with your personal financial leverage when assessing your application. And because you are a guarantor for other loans, those can be taken into consideration when calculating your personal debt ration. A higher ration can deem your personal financial leverage as undesirable.
2) Negligent on material information
Our personal finances are very private information. As wealth is a symbol of social status, many people may be a little embarrassed about revealing the full details of their current financial position, especially if they perceive their personal credit record as one that is adverse. However do note that a mortgage broker or a mortgage officer is there to help you obtain your desired mortgage. It is their job and they will be delighted to be able to acquire a deal for you that you will be happy with.
Because of the nature of their job scope, they have seen a number of applications and have experience on what to look out for in your application. So when you are probed on personal financial information, be open in sharing them so that an officer will know the best course of action to help you obtain an approval for your housing loan.
Do not think that some information requested is not important. Unless you are the mortgage underwriter, you will have little idea on the assessment criteria required. When possible issues are raised by your mortgage officer, you can get them resolved before processing your application. Working on adverse issues only after your housing loan has been declined may be too late.
3) Outstanding arrears and credit card bills
Because a housing loan is a secured loan, you may be complacent on thinking that it is one of the easiest forms of loans that you can get. You may even think that you personal credit record is of little importance since the mortgage lender should feel save since there is a valuable collateral involved.
That is not the case. Your personal credit record can have great effects on how flexible a mortgage lender is willing to be with you. This is especially so when you are a new customer to the lender. They have not dealt with you before and the only way to fairly judge your financial behavior is to assess your credit record. When it shows that your current auto loan and credit card bills are late by 3 months, it does not reflect nicely on how well you manage your finances. You can be penalized with an outright rejection or offered more unfavorable terms because of the additional risks put on the lender. Always ensure prompt payments on your personal credit facilities at least 6 months before your housing loan application.
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