In recent years, it borrowers were finding it more and more difficult to find a home loan that they could afford. But now it is catching up with all of us. Renters were crying out for solutions to high interest rates, bad credit loans, and in general - a way to jump on homeowner's bandwagon. It led the 
way for the interest only loans, the exotic loan, or as someone once put it - the "toxic loan". The question is, can lenders be creative enough to save millions of homeowners from sure financial disaster? The 40 and 50-year loans aren't gaining momentum the way it was once thought, and refinancing might become an impossibility since lenders are correctly hesitant to hand out 130% loans. Many people were unwittingly victim to the "scare tactics" used to create an urgency to buy before prices skyrocketed beyond affordability. Others bought their homes convinced that they would double their profits over the next few years. Creative lending may not be able to pull troubled homeowners out of the pending crisis at hand - and yet lenders don't seem overly concerned.
In my last post, I reflected on a comment made by a hopeful in the industry, who believes that the troubles that overburdened borrowers could experience may be an "opportunity" for lenders to cash in on the need to refinance. However, what he did not mention was the probability that many homeowners are using their equity as a cash giving ATM machine, and actually facilitating financial doom. A huge portion of buyers who were approved for either interest only or exotic loans would not have qualified under traditional standards. I have probably hit a nerve with some homeowners who feel entitled to own a home even though they can't afford one, but I speak from experience. I am a renter not only due to circumstance, but choice. I could have easily for a creative loan, but under the advice of my father, an attorney, I read the fine print. By doing so, I realized what my payments had the potential to become, and "disqualified" myself as a buyer at that time. I couldn't be happier that I made that decision. Signing the documents that were set before me would have nearly tripled the sticker price of the home. While I stood back and watched the housing market over the past 10 years, I can honestly say - right now the grass is greener in my rented yard, while my landlord stuggles with the rising interest rates and increasing mortgage payments.
1. Christi,
I can't agree with you on this one. If you take a look at what you have spent by renting for 10 years and compare that to home ownership for 10 years there is no way that homeownship doesn't completely blow renting away.
Especially if you live in one of the areas that have seen so much appreciation in the last few years.
I agree that home values have gotten out of hand, but YOU would be sitting on all the value instead of your landlord. This coming bubble certainly won't erase 10 years of value nor are rates going to get so out of hand that your landlord will be at risk.
Remember rental properties are all about cash flow. If you landlord can't cash flow then he will raise your rent. This in turn increases the amount of money that you put down the drain each month.
If you look at the wealthiest 100 people in our country and then look at their holdings, most will have a heavy dose of real estate.
Real estate is the best investment that most American's will ever make. Some areas are crazy expensive. But don't let your perspective color your writing. Remember that you have a national audience and your advice will not fit a young couple in Michigan, for example.
Posted at 11:25AM on Jul 17th 2006 by David Porter