The Economic Financial Crisis Of A Lender - 1374 Words

The economic financial crisis that started in late 2007 and officially lasted through mid 2009, but whose effects are still felt today was caused by several factors such as the sub-prime mortgage market collapse, an increase in the unemployment rate and a slow down in the economy1.Sub-prime mortgages are loans geared towards borrowers with lower credit ratings. The economic conditions caused home values to drop and a large number of sub-prime borrowers found themselves in homes that were worth much less than the mortgages. The structure of many sub-prime loans also caused rising monthly mortgage payments as loans reached adjustment dates and interest rates were increased.A sizable number of sub-prime borrowerswere left with few options†¦show more content†¦These borrowers thatlost their homes several years ago are potentially in a position to re-enter the real estate market as homeowners again and are referred to as boomerang buyers. These buyers are estimated to potentia lly make up 10% of the home purchases in the country in 20143. The Federal Housing Administration (FHA) has developed regulations specifying a waiting periodfor borrowers to qualify for a new loan after experiencing a foreclosure or short sale. A borrower must wait between 2 to 5 years after a short sale depending on how large a down payment they can accumulate ranging from 5% to 20% of the purchase price. The larger the down payment made the smaller the waiting period. Borrowers that experienced a foreclosure have a waiting period of 7 years. In August of 2013 the FHA created a program named â€Å"Back to Work – Extenuating Circumstances†that reduced these waiting periods for qualifying borrowers4. This new program reduced the waiting period to 1 year if the potential borrower met the following conditions: 1. The borrowerwas unable to make their mortgage payments due to job loss or a reduction in income of more than 20% for a minimum of six months. 2. The borrower is currently employed and has the necessary income to make loan payments. 3. The borrower had a favorable credit score prior to the foreclosure or short sale and did not ever incur late payments or any other negative credit issue. 4. The borrower’s credit