housing prices and refinancing?
This is an excerpt from a Wiki article titled ’2007 subprime mortgage financial crisis’
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While U.S. housing prices continued to increase during the 1996-2006 period, refinancing was available. However, once housing prices started to drop moderately in 2006-2007 in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activity increased dramatically……
Why does it become more difficult to refinance when housing prices go down? It seems that there is a reverse relation between housing price and burden of refinancing. Could anyone explain??
This is not a direct effect of value loss but a loss in equity or better known as Loan to Value (LTV). Guidelines are set to allow borrowers to qualify for particular LTVs based on their credit scores. The way you figure LTV is Loan Amount / value of home. So in reality your loan is not effected by the direct drop in value but the fact that your LTV is so much higher.
If you need more info let me know Eddie.k@gwhloans.com
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