| In 2004 the popularity of adjustable rate | | | | lending guidelines became tighter and property |
| mortgages, also known as ARM's was shocking. 5 | | | | values continued to decline in 2007 and 2008. |
| 1 and 7/1 ARMS were in the 4% range so the | | | | Unfortunately foreclosures became an epidemic |
| lure of these teaser rate mortgages was not so | | | | as each month new foreclosure records were |
| shocking. 2005 saw the interest rates begin to | | | | broken. Home refinancing had not been this |
| rise, but the 5/1 ARM's remained in the low 5% | | | | difficult for several decades. |
| range for home buying and refinancing rates. | | | | For some borrowers, refinancing became |
| Mortgage lenders and brokers I interviews | | | | impossible as their homes were not worth as |
| seemed to always ask the same question - How | | | | much as they had purchased it for. After deciding |
| long can these low rates last? | | | | not to keep the house that they could no longer |
| In the mortgage industry, 2005, 2006 and 2007 | | | | afford, the foreclosure epidemic worsened. |
| will be remembered for the huge increase in | | | | Secured debt consolidation was no longer an |
| payment option ARM. These are the ultimate | | | | option as home equity loans and second |
| teaser rate loans that start at 1% but much of | | | | mortgages all but disappeared. The new |
| the interest is deferred. In other words, if a | | | | bankruptcy laws made it more difficult for |
| borrower didn't make payments to get caught up, | | | | homeowners to file for bankruptcy, but filing |
| their mortgage principal would actually increase. | | | | continued to rise because too many people could |
| Homeowners would actually be losing equity with | | | | no longer afford their homes. |
| these negative amortization loans. | | | | In 2009, FHA mortgage loans became the new |
| In 2006 $400 billion in mortgage loans were | | | | trend for borrowers who had the income and job |
| scheduled to rest which means the fixed rate | | | | stability. FHA loans became a good idea, at least |
| period had ended for these borrowers. In 2007, | | | | for people who planned on staying in their homes |
| another $2 trillion was resetting and then the | | | | long term. FHA mortgages also enable borrowers |
| crash. With rates on the rising in 2007 many | | | | to finance the costs of your home remodeling in |
| borrowers could not afford the higher interest | | | | your loan. With HUD's 203k loans, borrowers could |
| rates. Mortgage companies like New Century | | | | purchase or refinance a home that needs |
| started going out of business and property values | | | | improvements and include all the modification and |
| started dropping abruptly. | | | | construction costs in the loan. FHA home loans |
| Jeff Moran of CFB Loan Services said, "Clearly | | | | also encouraged borrowers to make their home |
| gravity finally kicked in the housing industry and | | | | more energy efficient. The FHA enabled people to |
| what went up, finally came down. Borrowers who | | | | finance energy efficient upgrades into their home |
| had variable rate loans across the country rushed | | | | refinance loan. |
| to refinance their ARM's to no avail. Mortgage | | | | |