Recently, newspapers, cable news services, and talking heads everywhere have been tossing around the phrase, ‘subprime crisis’. What they are so indelicately referring to is the recent rise in defaults on subprime housing loans, and subsequent foreclosures on properties across the U.S. Many of these lenders now find themselves in real trouble, with some having declared Chapter 11, or having been delisted from the NYSE.
When started, subprime loans were a niche market, appealing to people with bad or no credit, and allowed these people who had previously been shut out of the American Dream, to take part in it, and to become homeowners. Subprime loans now make up roughly 25% of all housing loans.
Unfortunately, greed, and gaming of the system has facilitated the current crisis. By placing their clients in ‘exploding ARMs’ or adjustable rate loans, which end up blowing up in the face of the borrower, many companies have profited briefly, only to finally see the property go into foreclosure. ‘Flipping’ houses has been a contributing factor as well, artificially raising prices, and many times causing the ?flipper? to have to take out a subprime loan, to cover his investment when the market inevitably cooled off.
How all this will play out in the long run remains to be seen, but the effects of the ‘crisis’ can be lessened if borrowers and sellers both begin to act more responsibly and understand certain changes that should be instituted. Lenders must do everything in their power to keep people from losing their houses. Foreclosure has a far-reaching impact, not only economically, but socially as well. Newer, stricter guidelines must be applied, and due diligence on borrowers, should be practiced.
Borrowers have to understand how the loans work, and must do everything in their power to make their payments. Mortgage borrowers with lower credit scores may still be eligible for loans, but lenders may require higher down payments of up to 10-20%.
As far as the San Antonio real estate market is concerned, San Antonio, presently is not a problem area on the national level, but has seen its share of increases in foreclosures. Over the past two years, foreclosures are up 15%. San Antonio REALTORS must do the same as national real estate agents, and institute measures to help lessen the impact in south Texas, and in the rest of the country, also.