Homebuyer’s Economic Challenges

• Job Stability – Unemployment is at a 25 year high and the number one reason for mortgage defaults. Economists tell us that over 83% of the nations industries have lost workers over the last three months.



• Increased Consumer Debt - Most homeowners add significant debt related to the home during the initial two-years of homeownership.



• Lack of Financial Reserves - Most homeowners spend their financial reserves required for loan approval within the first 60 days of homeownership. For a majority of low to moderate income homeowners, the first time there is a significant financial setback; there is not enough savings to keep them current on their monthly expenses. These financial challenges often lead to defaults or delinquencies.



• Lack of Financial Planning - A majority of homeowners have an inadequate understanding of their current monthly and future financial obligations. In short, they do not have a budget and do not plan financially for the future.



• Lack of Savings - From insufficient household budget training to retailers marketing of products and how to “buy on time” with credit cards, consumers typically do not have the proper behavior and mechanics to create sufficient personal savings.  Couple this challenge with the fact that new homeowners spend an average of $6,000 to $8,000 in the first two years to furnish their new home and you have a recipe for disaster if a financial “life event” were to occur.



• No Support System or Consumer Advocate - Few homeowners have any support mechanisms to address even the most common causes of financial difficulty. Additionally they don’t have an advocate working on their behalf with the lender.

Lender’s Economic Challenges

• Early Payment Defaults - Homeowner delinquencies continue to increase beyond expectation and have a severe financial impact on lenders. Without a proper balance of risk mitigation tools in place, lenders can cripple the financial well being of their company. Not enough risk mitigation measures will cost the lender severely in EPD fees, while too much of a risk mitigation strategy will lower the flow of production volume dramatically raise internal fixed costs.



• Termination of FHA License - HUD will revoke lender’s FHA license due to high Compare Ratios.



• Company Image - The subprime mortgage debacle made consumers skeptical about the professionalism of lenders.



• Loss of Investors and Warehouse Lines - Investors and Warehouse Lenders are restricting or terminating relationships with originating lenders due to their high Compare Ratios.

Builder’s Economic Challenges

• Builders are pushed toward continual reductions in the sales price of their homes, putting at risk the financial stability of their company.



• Increased Inventory Costs.



• Liquidity challenges – stagnant capital costs.