A Closer Look at Foreclosure: Part 1
Foreclosure has always been around. But, usually it happens to people who had an unfortunate event in their lives such as a job loss, serious illness and divorce. Lately, even people who are living normal lives, those whose circumstances before and during their mortgage never changed were also affected.
At present, foreclosures are so prevalent that it can affect a whole neighborhood, a city and even the whole country. In fact, the effects of the subprime crisis in the United States reached other countries such as Australia, the United Kingdom and Saudi Arabia. It can be quite overwhelming to understand why foreclosures increased to this level and why the subprime mortgage market fell.
The recent foreclosures in the United States were concentrated in the subprime portion of the market. A subprime mortgage is usually availed by individuals who do not qualify for a prime loan because of their poor credit history or no credit history at all. This type of loan tend to have a higher rate compared to prime loans. Thus, a subprime loan; depending on the amount of the loan, can have up to thousands of dollars more in additional interest payments. To add, subprime mortgage can typically involve an adjustable rate mortgage (ARM). The loans start off with a teaser rate but can escalate quickly. This resulted to a lot of borrowers starting off able to afford their mortgage payments, but only to default later on.
Some of the interesting terms related to subprime mortgages are:
Liar loans - They require almost no documentation of a borrower’s ability to pay, thus a borrower may declare a false or over inflated income.
Ninja Loans - short for "No Income, No Job or Assets"
Now, you must be wondering why the banks are willing to loan to such individuals. In Part II, you can read more about foreclosure, its vicious cycle and how it resulted to a subprime crisis that affected institutions and financial markets within and outside the US.
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1 opinion for A Closer Look at Foreclosure: Part 1
A Closer Look at Foreclosure: Part II
Sep 19, 2007 at 9:58 pm
[…] "A Closer Look at Foreclosure: Part I", I mentioned about the increase in foreclosure in the subprime portion of the mortgage […]
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