'Liar Loans' To Blame For Housing Crisis.

It is now clear that the housing crisis was basically caused by liar loans. Liar loans are those which do not require any documentation of income. Ironically such people have only ended up harming themselves. They overstated their incomes to buy houses they couldn't afford and now they are bankrupt. It is not as if the lenders did not know that the guy taking out the mortgage was lying about his income. Most of the time they had a fair idea that he was lying, but as long as the fees and commissions were coming in it was all right. They pushed loans which they knew he couldn't afford, and worst of all they concealed facts from him. The teaser rates hid the fact that the rates would reset later at much higher levels. After all everybody has to pay the price some day.

To get a fair idea of the extent of the problem and also why it isn't going away, you only have to look at some of the figures. For instance, during the boom years 43% of first time buyers purchased their houses with no-money-down loans. The average first time home buyer put down only 2% of the price of the house before moving in. He then usually managed a second loan to make improvements to the house according to his liking. Predatory lenders pushed innovative financial instruments to induce more Americans to buy a home. But an average down payment of 2% meant the guy just had no incentive to try and hang on to his house. When the going got tough he simply walked out. With foreclosed properties flooding the market there is increased pressure on home prices to the point we have a downward spiral in place. Prices were down 14.1% in the first quarter of the year , and are predicted to fall further.

The crisis has led to some welcome developments however, which will protect home owners in the long run. Lenders for one, are now asking for higher down payments and greater documentation of income. Although this is irritating, it ensures you end up buying only what you can afford. The most interesting development is that some builders are now offering price guarantees of up to three years. Although this may not help if the builder himself files for Chapter 11, such offers are likely to help the market find a bottom sooner rather than later.