Homeowners "Needed" Creative Lending

In recent years,the  borrowers were finding it more and more difficult to find a home loan that they could afford. But now it is catching up with all of us. Renters were crying out for solutions to high interest rates, bad credit loans, and in general - a way to jump on homeowner's bandwagon. It led the way for the interest only loans, the exotic loan, or as someone once put it - the "toxic loan". The question is, can lenders be creative enough to save millions of homeowners from sure financial disaster? The 40 and 50-year loans aren't gaining momentum the way it was once thought, and refinancing might become an impossibility since lenders are correctly hesitant to hand out 130% loans. Many people were unwittingly victim to the "scare tactics" used to create an urgency to buy before prices skyrocketed beyond affordability. Others bought their homes convinced that they would double their profits over the next few years. Creative lending may not be able to pull troubled homeowners out of the pending crisis at hand - and yet lenders don't seem overly concerned.
In my last post, I reflected on a comment made by a hopeful in the industry, who believes that the troubles that overburdened borrowers could experience may be an "opportunity" for lenders to cash in on the need to refinance. However, what he did not mention was the probability that many homeowners are using their equity as a cash giving ATM machine, and actually facilitating financial doom. A huge portion of buyers who were approved for either interest only or exotic loans would not have qualified under traditional standards. I have probably hit a nerve with some homeowners who feel entitled to own a home even though they can't afford one, but I speak from experience. I am a renter not only due to circumstance, but choice. I could have easily for a creative loan, but under the advice of my father, an attorney, I read the fine print. By doing so, I realized what my payments had the potential to become, and "disqualified" myself as a buyer at that time. I couldn't be happier that I made that decision. Signing the documents that were set before me would have nearly tripled the sticker price of the home. While I stood back and watched the housing market over the past 10 years, I can honestly say - right now the grass is greener in my rented yard, while my landlord stuggles with the rising interest rates and increasing mortgage payments.

Possible Dangers in Home Equity Loans

Now, more than ever, home equity loans have become the "thing to do". With credit cards holding interest rates higher than the rate on most mortgages, homeowners are have been looking towards home equity lines of credit (HELOCs) to buy the toys that they have always dreamed of. Now this may not sound like much of an issue to the untrained ear, but to those in "the know", there is a huge problem brewing in the real estate and mortgage industries. Home prices are beginning to drop in previously booming areas, interest rates slowly climbing, and a burst the number of exotic loans have increased the risk for homeowners, borrowers, and industry professionals. So why are so many mortgage professionals remaining calm? This type of build-up of financial burdens on homeowners brings about a perfect opportunity to cash in on the increasing need to refinance to keep their mortgage payments under control. According to Brad Brunts, with Citi Mortgage, these changes will bring him more business, "It offers an opportunity."
Freddie Mac estimates that Americans took $556 billion in home equity loans or cash-out refinancing programs. With little or no equity left in their homes, many homeowners will find that when their mortgage adjusts, that their payments could nearly double. This may even leave the borrowing homeowner with very few choices, and none of them good. The homeowners could choose to sell their home, but would most likely be in a position in which they owe more on the house than it's worth, and many similar homes on the market.
So is there hope? There is, take action before it's too late. In fact, it would be better to act on it before millions of other interest-only or exotic mortgage holders join the rush to dump their homes on the market.