Mortgage lenders may simply have issued too many bad credit loans during the housing boom for the nation’s foreclosure crisis to end any time soon. At least that’s what the Mortgage Bankers Association is saying with its latest report. The good news is that the number of mortgage loans in the early stages of delinquency dropped in the fourth quarter of 2009, according to the association. The bad news is that the percentage of loans already in the foreclosure process rose. A recent report in the Christian Science Monitor interpreted this data as meaning that the number of homeowners defaulting on their mortgage loans may finally have reached its peak. But the report also said that the numbers indicate, too, that it will take a long, long time before the nation’s foreclosure crisis reaches its end.
Are Bad Credit Loans to Blame?
Critics were quick to point to bad credit loans – those mortgage loans given to borrowers with less-than-ideal credit and high amounts of monthly debt – as the main culprit in the housing collapse. They criticized lenders and banks for passing out too much mortgage money to too many homeowners who obviously did not possess stable enough incomes to afford their monthly mortgage payments. There was a lot of truth to this criticism: The beginning stages of the housing crisis were definitely fueled by these bad credit loans.
From Bad to Worse
As the housing crisis dragged on, stable, middle-class borrowers with conventional mortgage loans began to fall behind on their mortgage payments, too. This wasn’t a surprise; many of them had lost their jobs. With most of their annual incomes gone, they could no longer afford their mortgage payments. Foreclosures soared. And by this time, it wasn’t just bad credit loans, but all mortgage loans that were at the center of the spike.
If the mortgage crisis truly is leveling out, and we’ll start to see foreclosures falling instead of rising, this becomes a good time to ask an important question: Have we learned any lessons from our mistakes? Have mortgage lenders learned to be more cautious when lending out money? And have borrowers learned that sometimes it makes more sense to wait to buy a home until their financial situations have improved? Let’s hope that we’ve all learned something from this terrible recession. If we haven’t, if we return to the days of rampant bad credit loans in the housing business, you can be sure that we’ll be suffering through another recession before too long.