The mortgage meltdown triggered off an unfortunate chain reaction that has led America to the brink of financial ruin. Despite the negative impact the subprime loan crisis has had on the nation's economy, job market and real estate industry, the situation has had some unseemingly positive effects as well, especially for individuals who believe in viewing a glass as half full.
The mess in the subprime mortgage industry is the cause of the demise of the nation's economic well being. Democratic part leader Chris Dodd has stated that approximately 80 percent of the subprime mortgages responsible for the financial mess were adjustable rate mortgages. Masses of financially challenged consumers that were able to qualify for the original loans could not refinance them easily and when monthly payment amounts increased, default and foreclosure rates skyrocketed. That caused investment bundles comprised of subprime loans to devalue, officially kicking off the Great Recession and the economic woes associated with it. Luckily, every cloud has a silver lining, and Mortgage Marvel, the industry's premiere mortgage rate origination tool has noted a few perks of the mortgage meltdown.
Lowered Property Taxes
Taxes are a necessary evil associated with being a responsible United States citizen. From income to clothing, taxes are levied onto every type of sales transaction and home sales are no exception. Mortgage Marvel defines property taxes as being "Taxes based on the assessed value of the home, paid by the homeowner for community services such as schools, public works, and other costs of local government. Sometimes paid as a part of the monthly mortgage payment." As the assessed value of homes has decreased, so have the fiduciary responsibilities of the home owners.
As a direct result of the mortgage meltdown, national home values have declined an average of 25 to 30 percent. As those numbers have retracted, so has the amount due in regards to property taxes. While some counties automatically review property tax assessment levels, some individuals have had to fight the good fight to lower their property taxes. Regardless of how the savings have come to play, the process is providing individuals with some spare cash that they never expected.
While some 'negative Nellies' may only see lowered property taxes as a sad reminder of a decline in their home's value, others who have followed a strategy to avoid buyer's remorse see this as a bit of a break. Home owners who have committed to their properties will eventually see their home value rebound, plus enjoy the little cash allotment. While that spare cash can be used for anything, investing the money towards making an additional principal balance payment to build more home equity is one of the smartest moves to make.
Housing Affordability
Circa 2004-2006, the fair market values of houses increased and buying real estate became more challenging because of the ever-growing price tags. After the market's peak in 2006, the bubble burst and home values dropped dramatically. The price tags associated with single-family detached homes, condos, townhouses and coops have now retracted to pre-boom levels, making housing affordable once again.
Aside from the housing bargains proliferating the nation, mortgage rates allow consumers to borrow money on the cheap. The Federal Reserve has committed to keeping interest rates low as a way to stimulate the fledgling economy. As a result, well-qualified consumers can now secure traditional 30-year fixed rate mortgages for a rate of around 5 percent. That is a far cry from 1982's average mortgage rate of 16.04 with required an average discount point of 2.2 (Freddie Mac).
The two factors combined have leveled the playing field in regards to home ownership and have helped create a buyer's market unrivaled by history.
Fiscal Responsibility
In America consumerism and keeping up with the Joneses is considered to be a national past time. As a result, prior to the Great Recession, Americans barely banked any of their hard earned cash for a rainy day and instead funneled their money into buying luxury properties, expensive toys and lavish amenities for pleasure in the here and now.
Since January 1, 1959 the Department of Commerce: Bureau of Economic Analysis has kept data on the personal savings rate of the average American. Between 2000-2010, the rate has hit 1.0 percent many times, meaning that Americans were not conducting their own due diligence in maintaining emergency financial resources. In 2005, the U.S. national savings rate had dropped to the lowest levels since 1933 at a negative rate of minus 0.5 percent (MSN.com).
Additionally, because of limited credit, consumers are no longer in the position to be in a negative savings (where financial debt out weights cash on hand). Credit regulations were tightened after consumers with less than stellar credit histories defaulted on their subprime loans.
That was then, this is now. Due to the Great Recession the savings rate has started to increase. In 2008 the trend started rising from 1.3 percent in January of that year to 4.2 percent in December of 2009. In 2011, January boasted a personal savings rate of 6.1 percent, while February showed Americans banking 5.8 percent of their disposable income.
Courtesy of stricter credit rules, the average credit score has dropped (according to FICO almost 25.5 percent of consumers have a credit score less than 600). Within the mortgage industry, lenders now require borrowers to have the magic credit number of 730. Only the most financial sound consumers now have easy access to credit and the ability to lock in the best rates on mortgages. While this is preventing a full rebound of the real estate industry at large, financially healthy investors will ultimately strengthening the foundation of the country's housing market.
