Bankruptcy

The Changing Face of Mortgage Loans

By guest-writer

Since the start of the mortgage foreclosure crisis in 2007, the mortgage industry in the U.S. has changed significantly. And, according to a recent piece in the Wall Street Journal, one of the latest changes being noted is a push by banks for larger down payments on mortgage loans.

Here?s a look at what that might mean for potential homeowners, the housing market and the recovery of the U.S. economy.

More Money Down = Fewer People Buying Homes?

The WSJ reports on how the home-buying landscape has changed in recent years:

• Down payments at all-time high: One online real estate information base, Zillow.com, has apparently been keeping track of median down payments required by lenders since 1997, and this year?s median (22 percent of the home?s value) is the highest that number has been since the tracking began.
• Steep rise in required down payments: What?s more, sources report, that 22 percent figure marks a doubling of the median down payment required just three years ago! In other words, banks have reacted swiftly and decisively to the turmoil in the housing market.
• Higher stakes for homeowners: It seems that the push for higher down payments has been largely driven by lenders, as a reaction to findings that homeowners with more of their money on the line (i.e. those who make larger down payments up front) are less likely to default on payments or go into foreclosure than those with less money at stake.
• Alternative lending assistance sought: The Journal notes that, because many potential homebuyers cannot afford a 22 percent down payment, there?s been an uptick in applications for mortgage assistance programs designed to help select groups of people (including veterans).

A More Realistic Picture of Homeownership?

While owning a home has long been considered part of the ?American Dream,? the real estate bubble?s devastating effects on the housing market has left some people questioning whether homeownership is in fact for everyone.

Considered from a broad perspective, tightened mortgage regulations could well be a good thing for the U.S. economy as a whole: with lending practices that require more fiscally conservative borrowing and spending, the housing market will have less of a chance to spiral out of control and create another boom-and-bust cycle like the one we?re currently digging out of.

Worried about Your Mortgage?

If you?re currently saddled with an unaffordable mortgage (or one that?s gotten out of your reach because of job loss or reduction), you may be able to benefit from the foreclosure-prevention power of Chapter 13 bankruptcy, which may allow you to catch up on your mortgage payments or sort out your living arrangements without the pressure of creditors breathing down your neck.

Full post as published by The Bankruptcy Blog on February 21, 2011 (boomark / email).