Few adults have forgotten the fiscal horror of the subprime mortgage crisis and the resulting economic recession. While most of the country has rebounded, there are still a few areas that are actually still struggling to regain pre-recession conditions. The recession itself, as well as a number of laws and policies regarding how mortgages are handled have also had a direct impact on the real estate industry.
In the wake of the mortgage crisis, building in the US came to a crashing halt. Banks in possession of masses of inventory thanks to foreclosures also caused demand for new construction to bottom out. As economies slowly recovered and inventory decreased, building took time to start up again. As a result, America is in the grip of a severe housing crisis, with prices skyrocketing in areas that were the first to recover financially, leaving other states still struggling to recover.
During the heyday of the subprime mortgage era, buyers had a range of loan options to choose from and could often get a loan of up to 125% of the home’s actual value. In many cases, buyers with even the lowest credit scores didn’t need to make a down payment and could even choose options like “interest only” loans to keep payments low. Now, borrowers with a credit score of less than 620 are unlikely to be able to get a loan at all and will pay more for a loan if their score is under 760. In addition, there are fewer options to choose from and most buyers will need to make a minimum down payment of at least 3.5% of the loan.
Before the crash, borrowers were given very few documents that laid out the financial terms of their purchase. These documents were often misleading and didn’t paint a very accurate picture of all of the potential variables that could affect the overall cost of the loan. As a result, many borrowers had little understanding of the terms of the loan. New standards enacted by the Consumer Financial Protection Bureau (CFPB) created greater transparency and more user-friendly documents that borrowers can understand.