Government has been the principal factor preventing the 鈥渁ffordable housing鈥?that politicians talk a
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Government has been the principal factor preventing the 鈥渁ffordable housing鈥?that politicians talk about so much.
Amid all the hand-wringing and fingerpointing as housing markets collapse, mortgage foreclosures skyrocket, and financial markets panic, there is very little attention being paid to the fundamental economic and political decisions that led to this mess.
The growth in risky 鈥渟ub-prime鈥?mortgage loans by people buying homes they could not really afford has been a key factor in the collapse of housing markets, when the risks caught up with both borrowers and lenders.
But why were home buyers suddenly taking out so many risky loans and lenders suddenly arranging so much 鈥渃reative鈥?financing for these borrowers?
One clue is the concentration of such risky behavior in particular places and times.
Interest-only mortgages, where nothing is being paid on the principal for the first few years, enable many people to get started on buying a home with lower mortgage payments at the outset.
But of course it is only a matter of time before the mortgage payments go up and, unless their income has gone up enough in the meantime for them to be able to afford the new and higher payments, such borrowers can end up losing their homes.
Such risky mortgage loans were rare just a few years ago. As of 2002, fewer than 10 percent of the new mortgages in the United States were of this type. But, by 2006, 31 percent of all new mortgages were of this 鈥渃reative鈥?or risky type.
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