Recession ahead?

Everyone seems to wonder if we will see a recession ahead? Rates have been dropping consistently and are expected to continue their decline. This is not a surprise. We have known for some time that the housing bubble would bring the house of cards tumbling down.

The lenders created the ability for buyers to qualify for homes that were well beyond their normal affordability� by offering “teaser” rates that offered low payments for a limited time. The starry eyed buyer, eager to cash in on the boom that had been happening earlier this decade, stepped up to the plate and secured these homes at 80-100% financing with a limited time in a low payment loan.

Then the boom hits and the market takes its cyclical turn and you have to wonder why there is always a huge number of people that are caught with their pants down. I mean, this is a repeating cycle. After the market has a run up like it did, it WILL have a correction. Unfortunately, this still doesn’t seem to prevent people from making these kind of decisions.

The lending community only fueled the fire. As the market turned, the lenders changed their criteria and created what would be the largest foreclosure market the country has ever seen. Even borrowers who made all their payments, on time, were in a jam because the home they financed at 80 - 100% is now worth less than they owe and their are FEW lenders willing to loan at this level anymore and at very sub par rates. As a result, these homeowners now are in loans that are changing from the low payment, fixed rate “teaser” to an higher, adjustable rate. In many cases this new payment is 30 - 50% higher than the original payment!

This is causing a great number of people to have to sell the home through a short sale or face foreclosure. This year is expected to result in the largest number of foreclosures this country has ever seen. Certainly, when combined with the global bond market issues it is pretty clear that a recession is ahead. The extent seems to be small as recessions go but that remains to be seen. In the meantime, we will probably see another test of the rate bottoms.

For those who have remained steadfast and did not get themselves into trouble this is a good time to consider paying off the home as fast as possible.

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