Another barrage of news from companies that make residential loans to customers with weak credit shows that industry players continue to face a steep climb as they try to restore their financial health and return to the good graces of equity investors. And a widely followed real-estate industry report said subprime woes were beginning to weigh on the homebuilding sector.
You can read the rest of the article, but in short, mortgage lenders are reaping the fruits of what they have sown by irresponsibly lending money to people with poor credit or incomes that just couldn't cover their expenses. This housing boom which economic apologists are quick to point to as evidence of a strong economy has been propped up by people living on credit they couldn't afford. Take this case, for example:
Consider Andrew D. Sobel, a 48-year-old in San Diego, who took out two mortgages to buy a $240,000 condominium in 2004 and is now facing its sale for $175,000. He could not afford higher monthly payments that took effect in September, when his loan was converted to a variable interest rate. Countrywide, which services his loan, would not agree to modify the loan but was willing to accept the short sale. He could not refinance because the home is worth less than what he owes on the property.
“There was never any effort to try to keep me in my home,” he said.
More borrowers may find themselves in a similar situation in the next two years as the first interest rate adjustments take effect on loans in 2004 and 2005. Those who continue to have spotty credit and little equity in their homes will be at the greatest risk because many lenders are no longer offering no-money-down mortgages to people with weak credit.
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