While many predicted the current collapse of the real estate market, others were taken by surprise when the market that had created so much opportunity for profit prior to the crash, began to crumble. Certainly, one of the leading events that eventually resulted in the collapse of the real estate market was the crash of the subprime loans market. As a result an unfathomable amount of mortgage companies were suddenly forced to close their doors. Even those companies that were not forced out of business found they had suddenly lost billions of dollars.

Just a few years earlier subprime mortgages were a seemingly great advantage to many property buyers; Buyers who were interested in taking advantage of the hot real estate market but who lacked qualification profiles required by conventional and FHA mortgages, and instead turned to non-traditional and exotic mortgages offered by subprime lenders in order to obtain loans. The underwriting guidelines for these loans were generally more lax than traditional mortgages ("No Income/No Asset verification") loans for example. This allowed even buyers with poor credit to obtain a loan. In exchange for making a loan to buyer with less than stellar credit, lenders were able to charge a higher rate of interest.

The money which funded these loans came from a variety of sources. Low interest rates made it possible in many instances for lenders to actually borrow money and then loan out those funds to home buyers and higher rates thereby realizing a higher yield (profit) for themselves. In other cases, the money was obtained from more complicated sources. As you may or may not be aware, it was not uncommon for governments to borrow money from central banks.  The housing market was stable back then; In fact, the housing market was experiencing a high that had not been seen in quite some time. Beyond the fact that many home buyers were taking on massive amounts of debt there also existed another problem. Due to the health of the real estate market at the time, there were expectations - by some experts - regarding future growth that, in hindsight, now is proven to have been unrealistic.

The last two full years of the real estate boom occurred in 2005 and 2006. During that time period lenders did not hesitate in the least to lend money to borrowers regardless of their credit profile (unless the applicant was so bad in all areas of qualification it would have been impossible to justify a loan to him/her). These loans represented tremendous money-making opportunities for lenders. Problems really began to occur; however, when interest rates began to rise from their previous lows. Historically, rising interest rates always had a negative effect on the real estate market. When rates are low they help to produce demand; however, when they are high they ultimately cause prices to fall. Until mid-2006 home builders could not build new homes fast enough to meet the growing demand. During mid-year; however, the demand began to slow. It was also about this time that the rate of defaults on loans began to increase.

Before long many mortgage lenders began to find it difficult to obtain money from their previous sources of funding. As a result, would-be buyers discovered that loans were no longer as easy to obtain due to the fact that money was no longer as widely available. Additionally, investors suddenly became wary of taking on risk and underwriting guidelines grew stricter. Homeowners who had taken out loans with adjustable rates began to find it difficult to meet their mortgage payments as interest rates continued to rise and those mortgages adjusted to make payments higher. More stringent underwriting guidelines meant they were unable to refinance to fixed rate mortgages in many cases. As a result, defaults continued to rise; fueling the massive rash of foreclosures.

  LendingClub Investor

  
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When discussing the real estate and mortgage markets these days, it is almost a necessity to also discuss current unemployment numbers because one of the basic qualifications a potential home buyer must meet in order to obtain a mortgage is "a consecutive twenty-four months of employment", preferably with the same employer depending on his/her overall work history. According to FHA requirements and guidelines a mortgage applicant must be able to document the most recent two years of employment regardless of whether s/he has perfect credit and a large down payment (twenty percent or more).
Short-term housing - Home away from home
It seems then that when an individual is laid off (fired) from the job that s/he held for a considerable period of time his/her ability to purchase a home becomes almost non-existent and therefore has a direct impact on the reporting of housing units sold in that region of the country. Housing sales for the month of July, 2010 showed a reduction of twenty seven percent (27%). This decline is most likely attributed to the continued unemployment situation that has been a constant problem throughout this recession.
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So we know that the economy is not good as measured by unemployment which directly affects real estate and mortgages in a negative manner; What hasn't been determined yet is how to solve (or improve) the situation. What are the answers? Get a job? A new job in which your income is similar in amount and frequency would be acceptable to the FHA and you may still qualify for the mortgage (but only after you have received your first 30 days in salary) because your work history on the previous job can be added to the first month on the new job and used to satisfy the two year requirement.
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What if companies are not hiring? This has become an often-repeated reason for the continued high unemployment (9.6% as of yesterday's - Friday September 3, 2010 - report) and will continue as the main reason until companies begin to hire again; But, is there perhaps another option? Is there freelance work available that does not require a company to provide all the benefits that an employer must (e.g. health care, workman's comp, paid vacations, etc.).
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If your new freelance (independent contractor) work is comparable to the work you had done for the employer that laid you off, and you can show proof of earnings (30 days worth of pay statements or other documentation), and prospects for continued work are good or excellent, your chances of getting a FHA-insured mortgage approval may still be very good. Of course, through this process of being laid off and reapplying for jobs as well as having to settle for freelance work could have a rather negative impact on your desire to pursue a home purchase, and this is certainly understandable in these times of uncertainty.
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