Smart Borrower Blog

Homeowners Stuck with Low-Value Properties

Feb 12th, 2008 @ 3:02 PM by MortgageMentor

The housing “bubble” of the past few years caused a flurry of lending that might not have happened, except property values were rising fast. Buyers felt good about it; after all, buying houses is what we do. And if they put 20% down, they figured property prices would have to drop by 20% immediately to lose out. Prices have been rising since the 1800s, so why would they drop now?

Lenders also felt they were safe. Handing out second and third mortgages and home equity lines of credit was not risky because the value of property would rise quickly; the homeowner would easily be able to pay back the loan, or get cash out upon the sale of the property.

There was a great deal of fraud — Appraisals were often falsified to give an inflated value to a property so the lender could loan the extra funds. Lenders of the sub-prime variety falsified documents and did not disclose details of the loans to unsuspecting borrowers. Plus, there was a general lack of understanding on the part of many consumers.

Now the bubble has burst, and homeowners are left with property having little value — not to mention those two or three mortgages. In Riverside County, CA, one of the hardest hit areas, there is a foreclosure for one of every 43 families. People are giving all kinds of advice to borrowers who are facing, or about to face, foreclosure. There are even suggestions to walk away from the debt they owe. Tomorrow we will look at one of these in depth.

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