Home buyers can still get 95% loans, but for some, coming up with even a 5% down payment plus closing costs can be quite a challenge. Buyers are starting to look for friends and family for funds as well as the HART Program to help make ends meet when purchasing a home.

Industry experts say that what’s happening now is basically a consolidation, where many of the small companies that profited in a booming real estate market are now having trouble finding funding sources.

Countrywide Chief Executive Officer Angelo Mozilo said that "The subprime business was (historically) a business of, you take inferior credit, but you require superior equity. So people had to make a substantial down payment if they had marginal credit. Well, that all disappeared in the last couple of years, and you can get a 100 percent loan with marginal credit. And that doesn’t work, particularly if you have any kind of bumps like we’ve had now in deterioration of real estate values, because people can’t get out."

Local Santa Clarita lenders are seeing more trouble in the cash-out refi loans than with the 100% financing, where homeowners took out equity after their initial purchase. Much of these funds went into toys (boats, cars, RV’s and vacations) rather than being reinvested into the homes. Some even got these cash-out refi’s by using highly inflated comparable sales for the appraisals, which makes it even harder for these homeowners to sell since they owe so much more than their homes are worth.

Of course lenders aren’t allowing people to just walk away with a short sale just because they made poor decisions with their refi’s – there’s got to be something more significant going on, such as a divorce, disability or job transfer, for the short pay to even be considered by most lenders. This will likely bring more foreclosures as cash-strapped homeowners can no longer afford to pay their inflated mortgages once the funds from their cash-out refi’s has been used up.

What’s not so obvious is that some of the newer homeowners were put into loans that just about guaranteed that they’d be facing foreclosure after their introductory interest rates expired.

With 100% financing and an automatic payment increase when their intro rate expires, many homeowners just can’t afford to stay in their new homes any longer. Nor can they sell in the normal manner since they loan is likely more than their home’s value, or at least there isn’t enough equity to cover closing costs and commissions as well as the loan payoff.

So what’s a homeowner to do? Very likely a short sale will be the answer for many homeowners. This is where a Realtor negotiates with the bank to allow the sale of the home at less than what the bank is owed. There’s a lot of paperwork and negotiating involved in this process and the sellers will walk away with no cash in their pockets, but at least their credit won’t be ruined as it would be with a foreclosure on their record.

A good primer to read is Stop Foreclosure Now in California so you can get a full understanding as to how the California foreclosure process works.

If you’re a homeowner in this situation, be sure to call a knowledgable Realtor who can help you discover what your options are. Beware of the "we buy homes for cash" signs and others who may come knocking on your door as soon as it’s reported that you’re behind on your payments! It also may be a good idea to talk with another lender or a bankruptcy attorney, so if you need a referral to either of these, email me and I’ll introduce you.