Prior to becoming a full time homemaker/freelance writer, I worked as a mortgage broker. I loved caring for the customers and helping them to make their dreams of home ownership come true, so the fact that there are so many foreclosures causes me to feel a loss. We are uncertain as to what will happen next in the U.S. economy as the value of the American dollar continues to drop. Gas prices are unstable and food continues to go up yet people are not making more money. Inflation is like a black hole to many of us. If the economy completely crashes inflation will go through the roof, and many people may starve or experience a diminished quality of life.
My own neighborhood is starting to get very empty. Each morning as I walk down the block with my babies in the stroller, I see rows of empty homes. It almost has a creepy feeling of a ghost town because it’s getting so quiet compared to how it used to be. We see big signs all throughout the neighborhood that say “Public Auction” in the window. Weeds are starting to consume so many yards that they are swallowing up the house. Just thinking about all the people who have lost their homes weighs heavily on my heart. I have even seen some of my own family members suffer through this. It’s getting harder to survive on what we have and we are forced to evaluate our living situations. People are starting to be less wasteful and make better choices because of their past mistakes.
Some say that the problem stems from the large amount of ARM loans that were sold in the past and I think this is a major contributor. Most adjustable rate mortgages have a fixed rate period that ranges from 2-10 years depending on the loan. After the fixed period is over the rate will adjust depending on the market. In most cases this can cause the payment to go up $300-$800 on average when the fixed period ends. Many consumers were attracted to ARM loans because they offered a better rate and payment for a given period of time, yet these people were given a false sense of security because many people assumed that real estate prices would just keep going up, and that they could re finance before the fixed period was over. Yet, when prices went down a large number of consumers were up side down in their loans, and the option to refinance was lost because it’s nearly impossible to refinance a home with no equity.
The old saying that history repeats itself rings true in this case because something very similar happened in the 1980’s. Everyone seemed to be living in a bubble thinking that the rising real estate prices would just continue to go up. The problem is that the bubble burst and prices started to plummet. For many Americans adjustable rate mortgages were never a good idea in the first place because so many people live paycheck to paycheck. When their mortgage goes up they no longer have the ability to pay and this creates a domino effect all over, which is what we are seeing now with record numbers of foreclosed homes.
The good news is that there is hope because many of us are starting to learn from our mistakes. Lenders are tightening up on sub-prime lending in an effort to stop the foreclosure trend and get the right people into a home, instead of giving just about any one the privilege of home ownership. It’s getting harder to own a home, but in the future this may help to prevent this sort of thing from happening again. This can be just a matter of opinion, but more people are starting to realize that ARM loans are a financial trap because you never know what the market will do.