How Has The Bad Economy Affected Mortgage Loans?

What came first, the chicken or the egg? Or, in this case, the economic decline or the mortgage crisis? Maybe it’s better to look at how the two have combined to create the perfect economic storm. A sub-prime tsunami, if you will.

They have actually taken turns affecting each other. To use just one more analogy, it has been like two prize fighters punching each other until both are beaten to their knees.

Catch phrases and analogies aside, recessions are determined in the rear view mirror. And, according to the National Bureau of Economic Research, the current recession began in December 2007. This exact date is up for speculation, but it’s a reasonable enough starting point.

The housing market, on the other hand, began a year or so earlier when too many homeowners got involved in creative financing for their home mortgage rates, such as adjustable rate mortgages (ARM). Then they started to see their affordable monthly payments bump up to a much higher sum when the ARM adjusted, putting the squeeze on homeowners who desperately sought buyers who simply weren’t willing to pay the inflated price tags on the homes of 2006.

The problems were then compounded when unemployment continued to rise, which made the prospective home buyers dwindle even further. And the knockout punch came when banks began to fail, freezing the financial markets, making it difficult on everyone who wanted to take part in the real estate market.

The Snowball Effect

Financial regulations are being developed on a continual basis to ensure that we don’t see the reckless financial shenanigans that got us into this situation in the first place. And now that people don’t have jobs, or are taking lower paying jobs just to get by, they can’t afford to purchase a home, which has made even more difficult by the fact that the new financial restrictions raise the bar on qualifying for a mortgage.

This brings us to the Obama administration and their efforts to stabilize the housing market. This being done primarily with the Making Homes Affordable plan, which offers assistance to those people who desperately need to refinance their home, or are looking for a loan modification. The verdict is still out on how effective it will be.

So, is there an end in sight? History tells us that all recessions come to an end, even the worst kind. But in the absence of a crystal ball, we will have to leave the predictions to the bravest pundits, or even better... the rear view mirror.