The Result to Homeowners from Bad Credit Loans
Relaxed credit practices over the last couple of years have allowed many land investors to take advantage of the property and goods purchases that otherwise wouldn’t have been possible. At the time this wasw seen as a boon to those investors and perhaps gave a shot in the arm to the construction industry and others who rode thiws investment swell right to the top. Appraisers in the real estate industry cautioned that prices were becoming artificially inflated and were urging caution. That bubble burst as the economy started to turn down and soon everyone was on the band wagon blaming the coming crisis on bad credit loans.
The most obvious immediate result of these bad credit loans was a default on the loans. Those investors, at the slightest down-turn in the economy, were the first not to be able to pay the obligations they had taken. Banks had lent money upon a stated income basis with payments due only on interest and with these lending institutions betting on continually rising prices and market conditions. Many in the lending institutions made a fortune off of these risky loans. There were little consequence to them when the loans were not able to be repaid and suddenly hundreds of foreclosures loomed.
This glut of foreclosed properties had an immediate result for other homeowners whether they had owned their homes for years or whether they bought their homes in that period of time when home prices were unnaturally high. The bad credit loans in collapse created a domino effect on the majority of homeowners in that their homes suddenly lost serious value. Those who were unfortunate enough to purchase when prices were over inflated found themselves with homes that they owed thousands more on than the home was worth. Even if they had purchased their homes fairly and conventionally, they found that it was not worth it to keep paying on a home that was now worth tens of thousands less.
With their evaporating equity in homes, more foreclosures resulted. Bank bailouts had little effect on foreclosures because the people hit the hardest by the bad credit loans were really the people who lost thousands in equity, not the banks. Then the governmental entities that depended on taxes, particularly property taxes, began to take a hit as dominoes continued to fall. Declining property values hit the property tax base and that sent ripples throughout the economy. Nothing good came out of these risky bad credit loans.
