subject: Shortage Of Cash In Mesa [print this page] A capital crunch is what a credit crunch has also been defined as. There is usually a shortage in equity capital, and this limits lenders' abilities to make loans, and this is especially true in regions that have been most affected by the subprime mortgage and financial crisis. In a credit crunch, lenders keep the capital they have instead of loaning it out because they are afraid of not being repaid due to increasing numbers of job losses, mortgage defaults, bankruptcies, and other factors that increase the risk of defaults on loans.
Fewer dollars available for mortgages is the impact that this has on the real estate market. This means fewer houses will be sold, so there will be a surplus of houses on the market. Perhaps causing them to quit building totally, this oversupply of houses causes builders to become more cautious in building new houses. This was evident in areas of the nation where bankruptcies and foreclosures exacerbated an already saturated real estate market.
Job losses, foreclosures and bankruptcies led to people getting negative marks on their credit reports, which led to low credit scores. The low credit ratings make it almost impossible for those people to get loans, especially loans with reasonable terms. Besides this, with increasing defaults, bankruptcies, and foreclosures, banks started to tighten up their lending standards to the point that they became far more restrictive than was typical
That meant that prospective buyers who normally would have gotten loans didn't get them. As fewer people were able to buy houses, there were even more surplus houses on the market that couldn't be sold. The excessive number of houses for sale must be resolved for the market to rejuvenate, but several factors, not the least of which is inordinately restrictive mortgage lending policy, are creating a drag on the recovery.
Yet another factor affecting the real estate market is the correction in prices, where some areas have seen reductions of twenty-five percent and up. For some, the value of their home fell so dramatically that they found themselves owing more on the mortgage than the house was worth, which prompted them to quit making their mortgage payments and therefore fall into foreclosure proceedings rather than to remain in such a condition.
Any purchaser having difficulty getting financing is best advised to remain calm and not panic. If they have a bad credit report for some reason, they should take whatever measures they can to improve their credit rating. When things loosen up, they will discover that it is simpler to be approved for a mortgage loan, and finally they will be able to buy the house that they desire.
by: Logan Oulman
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