The writing has been on the wall for a while, yet many have been hesitant to read what it says. Many Americans are finding themselves getting deeper into debt. Part of this problem likely comes from the expense of owning a home of thier own. For a rising segment of homeowners, the cost of home ownership is forcing a tough situation into a dangerous one; creating a “foreclosure crisis” that will likely last several more years.

Earlier this year, current figures released by the Department of Housing and Urban Development are showing an alarming upswing in the rate of foreclosures. In some areas, of all home owners who were extended sub-prime loans, the rate of default is as high as 14-20% when 4-6% is considered “healthy”.

This data has been all over the news — the stock market has been in upheaval. Sub-prime lenders are usually experienced in extending financing to borrowers with credit problems, unable to verify income, job status or other factors that make them a poor fit for traditional financing. In the past few months, many major players in the sub-prime market have sold off operations or in some cases simply closed their doors and gone out of business. Just as their clients were unable to afford the escalating expenses of homeownership, many sub-prime financial companies found it impossible to absorb the foreclosure rate we are now seeing.

The backlash doesn’t stop with the sub-prime market. Even traditional lenders are increasing requirements and placing more scrutiny on the loan approval process. This begs the questions of how did this issue ever begin in the first place?

A fair amount of the responsibility can be laid at the feet of the borrowers themselves. In this age of “big is best” many Americans see a big home as an indicator of success. This pushes many buyers into trying to purchase a larger, more expensive home without enough thought to the affordability of one. Often buyers push the levels of affordability and end up in a difficult situation or worse.

Blame can also be laid at the feet of some financial institutions. Who is better informed as to how much house debt a borrower can afford? The current debt-to-income ratios are either being ignored, or the types of loans that lenders are providing are not good choices. Loans like 28/2 and 27/3 loans with fixed teaser rates that adjust after 2 or 3 years with a balloon or margin are just a few of the loans that have caused borrowers to get into trouble.

Of course the end result of this mess will be better qualified and better educated home owners but did things really have to go so far? We’ve seen foreclosre problems hit most of the large regions we work including Naperville real estate, St. Charles real estate, Montgomery real estate and Yorkville real estate. Frankly, I sometimes think they did. Lately it seems like it takes a good deal of shock to get some things back on track. In the mean time, if you are thinking of purchasing real estate in the next few years, it’s important that you start talking with your local REALTOR or loan officer and make sure your finances and credit scores are in order before you continue with applying for a loan.