The booming real estate and mortgage market in the United States is leading to a worrisome drop in standards for mortgage lending warned Alan Greenspan, chairman of the Federal Reserve. Alan Greenspan expressed concern for floating rate mortgages, interest only loans, and other exotic means of financing including option mortgage loans where homeowners have the option to pay interest for a period and that interest is added to the principal balance.
Mr. Greenspan went on to say that use of home equity lending accounted for about 80 percent of the rise in home mortgage debt in this country. Homeowners in the US have $7 trillion in home mortgage debt this year, way up from $4.82 trillion in 2000. Home equity liquidation takes place by the profit realized from the sale of the home, cashing out equity by refinancing a mortgage, or borrowing against value of the home with a home equity loan. Only 25 percent of homeowners are using this equity to pay off other debt. Some use cash from to upgrade their homes or even purchase second homes.
This boom in the mortgage and housing industry could spell trouble for homeowners if mortgage interest rates rise; home sales and mortgage refinancing would slow, and spending would also drop. Going one step further, this could hurt the economy. Many lenders are gearing up for the coming boom in mortgage foreclosures. What can you do to protect yourself and your family? Sign up for our free eZine: Five Things You Need to Know