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A look at how the mortgage loan industry has changed and how that affects you

For many people, the American dream is owning a home. However, this dream is becoming harder and harder to obtain for many people who have fallen on hard times as a result of recent changes in the mortgage loan industry.

What has changed in the mortgage loan industry
Recent changes in the mortgage loan industry include a sharp pullback in a lender's willingness to supply subprime lending. A subprime mortgage is a mortgage intended for those who have poor credit histories, typically with collections or bankruptcies, or who barely qualify for the ability to pay their mortgage each month because of incomes that don't allow them to do so.

Subprime mortgages allow people with bad credit or low incomes to secure mortgages, albeit at a high interest rate. In theory, these high interest rates allow the lenders to make even more money. These subprime loans have resulted in a large increase in the subprime market and has allowed many people to purchase a home.

However, many subprime lenders began to lose money as more homebuyers defaulted on their loans than expected. As a result, stock markets experienced major lows and a number of mortgage companies went under. Now, ARMs (adjustable mortgage rates) are expected to skyrocket as mortgages reset and many people who were able to buy homes will now have to pay much larger house payments than they can afford.

How the changes affect you
These changes may or may not affect you, depending on your financial state, credit history, and whether or not you are planning on buying a home. It used to be that lenders would finance 100% of your mortgage, or at least 97%, requiring little or no money down for people who don't have a lot of money to put down on a house. Now, obtaining these types of loans are more difficult than ever, particularly if you are trying to get into a home now but don't have the requisite 10-15% down saved up.

Many people who don't have the good credit required to get a mortgage with a good interest rate rely on subprime loans to get them into homes. However, many lenders are no longer giving out subprime loans as more and more homeowners are defaulting on their loans. As a result, lenders have been losing money and are unwilling to take the chances on subprime loans anymore. This means that those who were hoping to get into a home with poor credit or an inability to consistently pay the mortgage will have a very difficult time finding a loan.

For people who were able to get a subprime home loan with what many experts call "teaser rates" (low interest rates for the first few years that keep the payments down), can expect their housing payments to go up anywhere between 10 and 50% as the rates reset. This will force many families into foreclosure as they will be unable to make their mortgage payments.

The good news in all of this is that new changes in the mortgage loan industry will also make it difficult for lenders to finance people who can't really afford a home or who are at a greater risk of losing it. Stricter laws require them to better disclose terms and risks associated with home ownership, hopefully allowing more people to keep their homes.

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