She's Leaving Home

There should be no problems. Sounds like a line from "Westworld", remember the 70's sci fi movie where the promo said "Where nothing can go wrong"?

Well if something sounds too good to be true, it usually is. In our little scenario where Mr and Mrs Jones wants to buy a house, there was really nothing wrong with each response they received - "no problems". But the cumulative effect can be devastating.

First of all, the bank is willing to make a sub-prime loan. Sub-prime means that it doesn't meet the minimum requirements set so that a loan may be federally insured. In theory, there is nothing wrong with that. But what is happening now is the high default rate because the whole economy is slowing and people's living expenses are going up or they are losing their jobs so they can't make their mortgage payment because the bank had to charge a huge interest rate in order to insure that they make some money incase someone defaults so the bank forecloses but they have lent more than what the home is worth because the price is inflated due to the added closing costs and the previously hot market so the bank can't sell the house and get their money back so the bank loses money so they tighten their lending practices so the little guy can no longer get a loan and the big guy is trying to get out from under their big balloon payment which is a large sum of money due all at once but no one is buying a McMansion because they cost too much to heat because fuel prices have gone up and the baby boomers are downsizing because they are empty nesters and want smaller homes so the big houses are sitting so the people that are trying to sell them are having to take a loss because of the glut on the market of large homes and the new mid-priced homes are sitting because of all the new subdivisions that popped up due to farmers not being able to make a living so they sell off road frontage or whole farms and investors sucked them up because the land was so cheap then they have to make a profit so they sell lots to builders and the builders build until there are too many new houses so the builders stop building and their construction crews get laid off and everyone is selling and no one is buying so there is a glut on the market so a buyer has an advantage because if one person won't come down on their price someone else will so prices start to drop what with the law of supply and demand and with all the empty foreclosed homes on the market seasoned investors and first time investors are looking for a bargain to fix up to sell or rent then everyone thinks that houses are out there for the taking and they don't want to pay anything close to what a home is worth but people still have to sell so they end up owing more than what they can sell the house for which results in negative equity also known as being upside down so the seller actually has to bring money to closing which amounts to almost paying someone to take your house and with fewer sales the title companies don't have closings so they end up closing their doors and the mortgage broker has no mortgages to broker so he goes out of business and realtors can't sell houses because of the afforementioned conditions and you wonder why the housing bubble burst?

But now the banks are getting real and have started putting programs together to help people stay in their homes because it is expensive to foreclose..........

HELP! is really on the way, I promise.