A guide to 100% Financing with bad credit in 2007 (Background)
At the end of 2006 and the start of 2007 the mortgage and real estate industry as a whole experienced the biggest downward spiral in decades. The real estate market finally peaked after several years of record breaking rising values. As always happens in the real estate market, the values rose to a point beyond that which the average home buyer could tolerate. Investors were not able to sell at the same profits, and buyers felt costs reached a limit that was unattainable and new home buying began to cool.
In the financial arena we had several years of record mortgage origination volumes of which sub-prime mortgages, also known as bad credit mortgages, made a huge percentage of. Lenders were loosening guidelines and creating ever more aggressive programs to try to take advantage of the booming market. This led to many bad credit consumers accepting a loan program that was not in their best interest. The most popular and notorious loan was the 2 year ARM. With a teaser rate that allowed affordable monthly payments.. when these loans adjusted in 2007 we saw many people in loans that they could no longer afford. This cause a massive amount of foreclosure and loan defaults to take place. Lenders were taking bottom line hits in the millions that forced them to declare bankruptcy and shut their doors. This combined with the scrutiny lenders received from Government agency caused some of the biggest players in the industry to leave the loan origination arena. This had a severely negative trickling affect as the remaining lenders faced some very tough decisions. They saw that they could no longer originate loans as they had In the past.
The number of sub-prime lenders that closed doors was astounding. For the remaining lenders in the industry and few the new ones that would pop up in 2007, tighter underwriting standards prevailed. No more could the crazy loose guidelines from years past be allowed. Lenders had to really take a hard look at if a buyer was going to be able to repay their loan, even after an adjustment on an ARM loan took place. They needed to verify more information about the borrower’s history and had look deeper into their spending habits to qualify them for a loan. This led to far fewer loans being originated and fewer sub-prime buyers being able to purchase their first home. Also due to the stricter guidelines those borrowers that had originally been qualified for a loan and placed into a short term (band-aid) ARM loan were not able to qualify for a refinance when the adjustments came due. This forced many people into foreclosure situations.
What we had by the end of the first quarter of 2007 was a perfect storm in the sub-prime lending business and real estate markets. With an oversupply of inventory in real estate coupled with the fact that lenders were not willing to originate loans to the bulk of the buyers.. situations became bleak quickly. Thousands upon thousands of jobs were lost. Realtors, Real estate brokers, Account Executives, Processors, Underwriters, Mortgage Brokers, and loan officers all lost jobs. With fewer lenders and Broker business left operating many of these people had to leave the industry for a new career.
The few that remained were left to pick up the pieces and forge a responsible path for the future. With Mortgage Brokers taking a media beating the life of the mortgage broker and loan originator in 2007 continues to be a difficult one.
In part two of this article we will examine living with the new aftermath in bad credit mortgages in 2007 and some things all potential buyers need to know in order to buy their first home or refinance into a better loan.
Orlando bad credit mortgage is still being offered by Five Stars Mortgage.
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