How credit crunch occurred in US
During 2003-2006, the subprime lenders offered mortgage loans without verifying whether or not the buyer would be able to repay them. The subprime lenders usually provided risk-based loans at high interest rates. Though the borrowers took out loans, yet they sold the property whenever they were unable to make payments on time. However, with the fall in housing prices, the lenders were unable to recover the money that they have invested in the property.
How credit crunch affected real estate investment
Credit crunch has adversely affected both the buyers and sellers of US real estate investment. The lenders have been offering loans at high interest rates, thus making it difficult for the buyers to take out mortgage loans. The effects of credit crunch are elaborately discussed in the following lines.
• How credit crunch affected the real estate lenders
There have been a number of foreclosures as the buyers were not able to pay the monthly interest rates on time. There were about 2.2 million foreclosure filings in the year 2007, which even increased in the year 2008. As a result, the lenders have experienced financial crunch as they were not able to make profit.
• How credit crunch affected the real estate buyers
As a result of the massive rise in foreclosures, banks and lenders have been relatively reluctant to offer loans. This situation has worsened the condition of the real estate investment buyers. It has become quite difficult for the borrowers with bad credit history to afford loans at high interest rates. The buyers have also failed to satisfy the eligibility criteria for getting mortgage loans.
Credit crunch is not only restricted to real estate investment; it has also exerted devastating effects on other sectors of US economy. However, Government has introduced a number of policies to check the situation. Obama's "Home Affordable Refinance Program" requires a special mention in this regard. It would help to reduce the number of foreclosures; so hopefully the real estate investment may improve in the forthcoming days.