Rough Time Ahead For People Who Bought Houses At Inflated Prices

The following is an exerpt from a blog post by Matt Norris at Mortgage Cents. Rough times ahead for people who bought houses at inflated prices: Matt Norris said, "This is a bit of an elaboration on the consequences that some individuals in certain sections of the nation are about to experience as the result of fraudulent loan activity and property values that are overly inflated". Matt says, Potential long-term implications of fraud:Part of the reason for the rapidly appreciating property values we have seen in the last few years have been historically low interest rates and loan programs that make it possible for people to purchase homes that they have no business purchasing, when taking their income into account. What do you all think is going to happen when easily defrauded loan programs start to disappear and interest rates continue to rise? First, houses are going to be a tough sell, because they are going to be unaffordable until prices adjust in a downward direction to a level that makes it realistic to buy them. Loan programs that allow easy approval of loans for people that otherwise should not be able to afford a house are about to disappear. Second, when the values shift downward, you are going to have these “home owners” who were put into incredibly bad loan programs, didn't make a down payment, and can't afford their house payment. When they try to sell the depreciating property, they aren't even going to be able to pay off their mortgage in its entirety. If they don't pay it off, then the next buyer can't finance the purchase. As a final slap in the face, people that are in terrible loan programs such as an adjustable-rate mortgage in which they lack equity to refinance will be faced with increasing payments that they cannot afford. Since they can't sell the house to get out from under the mortgage that they can’t pay, they will just foreclose. That translates into a massive loss for the banks, which means further evaporation of bad mortgage programs and tightening of requirements on existing programs (if we're lucky). In a strange sense of irony, all of the foreclosures will actually result in housing that may once again be affordable. It's an interesting cycle. For the full story click here.