Housing.com News, Analysis & Opinion: Credit & Debt: "Credit Crunch" Locks Buyers Out Of The Market

Rising interest rates and dropping home prices have squeezed a market that had been propped up by risky loans and easy credit during the housing boom. As mortgage bills came due, foreclosures rose, and the easy credit dried up for families like the Shieldses. "Now we're stuck in the apartment," said Shields, 31, a firefighter who lives in Manifee, Calif. His wife gave birth to baby Gabriella at the end of March, and they are running out of space without options for a house.

This is a necessary evil to ensure the markets can recover and prices will drop, but it's still heartbreaking to witness people who thought they could have the American Dream realize that it may take longer, if ever, to achieve.

Deborah Beatty recognizes that she and her family could lose their home in Jersey City, N.J., across the Hudson River from New York, because they can't afford the mortgage. The newly constructed three-level home offers a view of the Manhattan skyline and the Statue of Liberty from Beatty's master bedroom window.

"I'm going to miss that," said Beatty, 53, who collects disability payments and does not work. "When I come in, I like to see the lady (the statue), especially when it's a beautiful clear night." Her 29-year-old daughter, a graduate student with an annual income of less than $20,000, qualified for a mortgage of $600,000 with no money down, split into two different loans at 8.75 percent and 12.5 percent interest rates. With income from tenants, which didn't come right away, Beatty's daughter thought she could afford monthly payments of nearly $5,000.But she hasn't made a mortgage payment in more than three months, and she's receiving letters threatening foreclosure.

I'm sorry, but this is just insane. You're living on disability payments and have a daughter making slave wages and you think you can afford a home that's worth nearly a million dollars? People in their prime earning years with loads of sheepskin to their name often don't make the scratch necessary for a home like that.

This is a situation where everyone is to blame: The adults of the family for convincing the daughter to take that suicidal risk, the shady loan brokers for giving them the real estate crack to do it, and the daughter for letting herself believe that real estate would be the key to living beyond their means. It's a perfect example of how lunatics who think they can game the system not only have ruined their own lives, but have screwed things up for rational homebuyers as well.

Trackback Pings

TrackBack URL for this entry:
http://weblog.housing.com/cgi-bin/mt/mt-tb.cgi/376

As has long been prophesized by myself and others, the tightening of lending standards and reduced access to credit is locking many would-be buyers out of homes they would have qualified for even as recently as two years ago: Rising interest rates and dropping home prices have squeezed a market that had been propped up by risky loans and easy credit during the housing boom. As mortgage bills came due, foreclosures rose, and the easy credit dried up for families like the Shieldses. "Now we're stuck in the apartment," said Shields, 31, a firefighter who lives in Manifee, Calif. His wife gave birth to baby Gabriella at the end of March, and they are running out of space without options for a house. This is a necessary evil to ensure the markets can recover and prices will drop, but it's still heartbreaking to witness people who thought they could have the American Dream realize that it may take longer, if ever, to achieve. And then, on the other hand, you have this: Deborah Beatty recognizes that she and her family could lose their home in Jersey City, N.J., across the Hudson River from New York, because they can't afford the mortgage. The newly constructed three-level home offers a view of the Manhattan skyline and the Statue of Liberty from Beatty's master bedroom window. "I'm going to miss that," said Beatty, 53, who collects disability payments and does not work. "When I come in, I like to see the lady (the statue), especially when it's a beautiful clear night." Her 29-year-old daughter, a graduate student with an annual income of less than $20,000, qualified for a mortgage of $600,000 with no money down, split into two different loans at 8.75 percent and 12.5 percent interest rates. With income from tenants, which didn't come right away, Beatty's daughter thought she could afford monthly payments of nearly $5,000.But she hasn't made a mortgage payment in more than three months, and she's receiving letters threatening foreclosure. I'm sorry, but this is just insane. You're living on disability payments and have a daughter making slave wages and you think you can afford a home that's worth nearly a million dollars? People in their prime earning years with loads of sheepskin to their name often don't make the scratch necessary for a home like that. This is a situation where everyone is to blame: The adults of the family for convincing the daughter to take that suicidal risk, the shady loan brokers for giving them the real estate crack to do it, and the daughter for letting herself believe that real estate would be the key to living beyond their means. It's a perfect example of how lunatics who think they can game the system not only have ruined their own lives, but have screwed things up for rational homebuyers as well.