One effect of Sub-prime loans
“Reid-Williams tried for months to refinance the house she bought in Yeadon eight years ago, but recently decided against it - to avoid a $4,000 penalty for paying off her existing loan early, she said.This is quite a contrast from two years ago. When Reid-Williams refinanced in 2005, it seemed like the lender was coming to her rescue with money she needed to pay off her car and other bills. When it was too late, she read the fine print.”
From philly.com
The problem isn’t just limited to Philadelphia, or any one income/credit group. The past few years have seen huge gains in real estate prices in many parts of the U.S., much of it driven by the ease of obtaining credit. Subprime loans aren’t the only “funny” credit product that created the current situation. Alt-A, which was designed for self-employed borrowers who either could not or did not want to verify income also was used extensively over the past few years.
What I see as a key point is the 48,000 risky mortgages given in the eight county Philadelphia area in 2005. Each of those mortgages probably represents a home where the owner is going to probably have payment issues in the next 1-3 years. How much can an eight county area absorb? Assuming their real estate is “normal” with buyers and sellers doing their “normal” thing, what happens when you put another 3,000 homes for sale in that market? What if it’s 6,000 homes?
Is this the making of the perfect storm? Credit is tightening due to the lenders and funds going belly up from the current default rates on the bad loans, home values in many areas are flat or dropping, and there’s a huge number of loans with their payments increasing.
Can’t refi due to no equity.
Can’t refi due to new credit standards.
Can’t make the new payments because the new payment is $500 more.
Yeah, there is some significant pain coming over the next few years.