Sep 08 2008
Trouble shrouds home loans
The house loan segment finds itself entangled again in troubles due to the unstable mortgage market. The trouble makers are no longer homes with bad debt but the culprits are now homeowners with good solid credit who dared to take exotic exorbitant loans which are way out of their paying power and they now find it difficult to pay. As per the data for the time period of up to the end of June it has been estimated that over 4 million Americans were either lagging behind with their mortgage payments or were nearing foreclosure. The shaky economy and plummeting home prices have made this once ‘contained’ problem to blow out of proportions.
An increase in unemployment rate along with a horde of other reasons including family issues and health problems combine to form the major reason leading to missing mortgage payments. But these are not the only maladies rigging this sector. Mal practices in lending procedures and uncalled speculations by home owners and retailers add to the trouble. The major cause of increasing delinquency rate is that most of the adjustable-rate prime loans were approved without checking adequate proof of income or assets of the borrower. The gravity of the situation can be understood from the fact that 1 out of 10 borrowers with prime ARM are now either delinquent or are nearing a foreclosure.
Many of the loans being availed by borrowers allow them to pay only the interest that they owe on the loan amount and that too for a fixed period of time while the other loans offered the borrower the option of adding any due interest amount to the principal amount. The gravity of the situation can be understood from the fact that defaults on the mortgages are costing mortgage giants of the like of Freddie Mac and Fannie Mae billions of dollars. The situation has gone so out of hand that the Treasury department had to pledge that it would come to the rescue of these giants if the need arises.