Circles, Dots and Mortgages

What the hell is this? My kindergarten drawing of what happened to the mortgage industry and why so many homes are in foreclosure or heading there.

The black dots represent the relative amount of people who have/need a mortgage.

The gray circle represents the size of the pool of available mortgage programs prior to ~August 2007, i.e. the sub-prime and Alt-A market.

The white circle represents the size of the pool of available mortgage programs today going forward, i.e. Conforming and FHA.

The gray circle has since evaporated. No new sub-prime or Alt-A loans available.

There are far less people who fit into the white circle.

That leaves a bunch of black dots that cannot get a mortgage anymore.

If you’re a black dot that has a sub-prime or Alt-A ARM and it adjusts for the worse, dont have the credit/financial strength to qualify for a Conforming or FHA loan (fit in the white circle), your stuck. Pay the higher monthly payment, sometimes as much as 50% higher, or lose the home to foreclosure.

Thats leaving a bunch of houses empty.

End of story.

Surviving A Recession

Not only is the reduced availability of mortgages affecting these people the falling prices of homes is as well. Even if your current loan is conforming, you may be upside down in it. You could still be stuck. That is unless you are able and willing to make up the difference in price between the original mortgage and the new mortgage. About a 30% average. not many people are going to be willing or able to do that.

Colleen

Nice mental picture Jeff. The 'available mortgages' has hit us hard. When we relocated to our area 5 years ago we had 22 rental units. We sold most about a year ago before the economy went south. We made good money on them, however, we are now limited to only 4 non-conforming loans. I wish we would have kept the rental units as the next couple years will be the best landlord market in recent (and perhaps distant) years.