Vic D. Dik asked:
Why is there a lot of home foreclosure in the U.S. today?Did the interest rates on existing home loans suddenly increase?
Are interest on loans allowed to fluctuate wildly? By how much? But are not the key interest rates which are the basis of interests on home loans at their record lowest, thereby making home purchases very accessible? And what is the current loan interest rate now in the U.S? In the Philippines, you pay 7-8percent per annum. How does that compare to the US?
Anita
Why is there a lot of home foreclosure in the U.S. today?Did the interest rates on existing home loans suddenly increase?
Are interest on loans allowed to fluctuate wildly? By how much? But are not the key interest rates which are the basis of interests on home loans at their record lowest, thereby making home purchases very accessible? And what is the current loan interest rate now in the U.S? In the Philippines, you pay 7-8percent per annum. How does that compare to the US?
Anita
Alice
Bill Clinton passed some legislation while he was President forcing banks to loan to lower income people. They did this with sub-prime loans which are loans with variable interest rates. Housing prices started to boom. Banks got greedy and gave out more loans to sub-prime borrowers. When these borrowers couldn’t pay the mortgage the banks took the house back, sold it and made a nice profit.
Shane
Adjustable interest rates on homes………….the interest rates go up, so do the payments. The trouble is no one could afford the increases.
Anyone with sense knew that they could never afford these homes, yet they bought anyway……and now the whole system collapses!
Ellen
“M” is full of cow manure; in the United States, presidents don’t pass legislation!
The crisis was caused by banks lending people more than they could afford, and by borrowers asking for more they could afford. It is NOT the job of government to prevent people or businesses from doing dumb things! The concepts of interest and variable rates are taught FREE to all schoolchildren in America, there is NO excuse for not understanding them.
Current mortgage rates are 4.5%-7%, depending on region and credit history.
Kenneth
Any comment made here will certainly reveal truths and causes…
Yet, with political rhetoric and media hype, along with the continual lies and finger pointing, it can be very confusing to most people…
The foreclosure problem can be accounted for in two major areas…those than can afford a mortgage and those that cannot afford a mortgage…
Naurally, the American dream of owning a home is instinctive for almost everyone and they will not shy away from an opportunity to fulfil this dream…
The major problem for these foreclosures is of lending mortgage money our of ratio to a person’s income, especially of those whose history has a below preferred credit credibility…
Lending agencies, banks, financial businesses and even landlords have held a more secretive formula for monthly payments for the past hundred years that ratios income required to maintain a credibility for payments of loans, mortgages and even rent. That ratio is a hidden rule of thumb, so to speak, and amounts to one weeks pay equal to one months payment…
When that formula is thrown to the wind, credit is given to those having no credibility and foreclosure (non-payment) is inevitible…
Sub-prime lending, which someone else here describes quite well, has caused the inevitible to happen…
The second area of foreclosure involves those with credibility that attained a mortgage in the past as well as in the present and their payments were marginal to their income ratio. As well, some foreclosures are result of a declining income with sound reason…
However, many of those mortgages were made with variable interest rates which have increased far more rapidly than ever anticipated…enough so that credible borrowers of yesteryear have been beseeched with higher monthly payments beyond their ratio factor and driving these mortgage holders into foreclosure status…
This is why a long term variable interest rate mortgage or money loan is not good as no one can predict what rates will vary to in long term…
Should the government bail the losers out with taxpayer dollars…? NO…! The banks created the greed problem and should eat their losses themselves rather than keep their stockholders rich…
What the government should do is to force the banks and lenders to re-write those lending contracts to ratio the monthly payment according to the borrowers income and do so at a much lower and fixed interest rate…
Believe me, the banks can afford it as they certainly earn a great deal more money on interest received than the hand out for interest on savings and investment accounts… Yet, as long as there is enough rhetoric revealing an opportunity for the government to pay the losses we can be sure the banks and other lending agencies will do or say nothing until the results are in…
Regarding your question of comparison to other countries and what the present rates are everywhere cannot be answered accurately as there are too many variables to be considered…
I do hope this clarifies your query in more understandable words…
Edna
Foreclosure rates are rising. The anomaly is that this was also happening during the 90’s when the refinance boom occurred. The difference now though is that home values are falling. With falling home values the lenders end up with property valued at less than they lent and thus they are incurring losses when they foreclose. Add to the mix that low income individuals made bad decisions regarding their interest rates they agreed to and you end up with mortgages that have increasing monthly rents with decreasing value. The crisis part of this equation is that it may be more attractive to some homeowners to walk away from a bad investment than to be responsible and contact the lender to attempt to resolve their situation. The media does not help with this situation. Rates are at record lows, but those are the base rates. Many of the contracts are a base rate plus a percentage reported in the Wall Street Journal. Usually these variable rates have both a ceiling and a floor that the rate cannot pass through. This is disclosed on the truth in lending statements and in the mortgage itself. 7-8% per year is not too bad. However when rates were at the all time lows many homeowners that bought conversion options had the option to lock in at the lowest rates. The crisis really all comes down to homeowners being responsible when signing at closing.
Rhonda
1. Government moves the interbank loan rate to historic lows, cheap cash becomes available to lenders.
2. Mortgage Lenders like Country Wide borrow cash at cheap rates to lend it back out to as many home borrowers as possible, ignoring inability of many to repay loans.
3. Wall Street firms like Bear Stearns package these mortgages into Mortgage Backed Securities (MBS) and sells them to their clients. They also buy billions of dollars of MBS themselves. Speculators trade MBS and CDS options.
4. The risk of holding the mortgages has been transferred from the lenders to investors, the lenders continue to give out shaky mortgages with little risk to themselves.
5. Availability of mortgages causes Demand for housing to jump, prices adjust and rise as well. Some people jump into real estate speculation, borrowing money on interest only mortgages expecting to flip the house as prices continue to rise.
6. Borrowers have trouble paying their mortgage even under initial rates because they couldn’t afford it in the first place. They fall behind in their payments. Rates begin to adjust higher which causes more late payments and eventually foreclosures.
7. Demand for housing drops, prices drop with it.
8. Homeowners now are stuck with mortgages that are significantly greater than the value of their home. The banks seeing their loan collateral (the house itself) is worth less must increase interest rates further. This cycle feeds on itself causing more and more delinquencies and foreclosures.
9. Housing prices continue to fall, speculators strategy has backfired on them.
10. The MBS that Wall Street created, sold or held are quickly deteriorating in value. Panic ensues and causes sell offs which further push the prices down.
11. The credit market goes into shock because of losses from these securities and from rising Credit Defaults of Bond issuers who were tied to these events. Credit dries up.
12. Without the ability to borrow at cheap rates corporations must reduce growth or begin to scale back. Layoffs are part of the strategy.
13. Less people now have jobs meaning more will go delinquent or foreclose on their homes continuing to push down housing prices and increase home mortgage interest payments for the rest.
14. All the rising demand for commodities causes high inflation reducing consumer buying power further and reinforcing the cycle of delinquencies, foreclosures and interest rate hikes.