The long mortgage industry slump which began early last year was brought about by a combination of factors, including the subprime loan crisis, a weak real estate market, unemployment, and rising inflation. These conditions have diminished people’s ability to make mortgage payments or initiate new mortgages, resulting in continually fewer new applications and more foreclosures (based on recent data from the Mortgage Bankers Association). So how long will this mortgage slump last?

One possibility is that the slump will end after home prices have dropped enough so that more non-homeowners can afford to purchase them. However, owners who previously paid much more for their homes and/or have mortgages for more than the home’s value may remain unwilling to sell at a lower price, and might be unable to buy another home if they do sell. The higher standards banks are applying to borrowers’ credit records (part of the subprime crisis aftermath) also reduce new lending.

Expensive food, heating oil, and gasoline have made keeping up with mortgage payments or buying a home more difficult for many people, which has helped the mortgage industry slump last longer. With an increasing world population and rising demand for fuel in eastern Asia, it appears doubtful that this will change in the near future. However, its impact may reduce as more people adapt to these changes by using public transportation, purchasing smaller vehicles, and growing some of their own food.

It should be kept in mind that the previous “boom” partially consisted of fraudulent loans and risky high-interest lending to people with very poor credit scores, so it may not be realistic to attain this level of mortgage origination again. Federal government agencies have been introducing new regulations for lenders and brokers in recent months; hopefully this will prevent the next slump from lasting as long or having the same severity. Nonetheless, this slump will last at least until incomes increase substantially and/or living expenses decrease.

Basically, the problems which have led to the mortgage slump have a long term impact which is unlikely to be mitigated very easily. Unemployment has just risen again to one of the highest rates in recent years and oil prices are exceeding $130 per barrel, so the present situation seems liable to last for a substantial period of time. However, history shows that previous housing and mortgage downturns have occurred and eventually came to an end as economic conditions changed.

It is usually necessary for potential borrowers to thoroughly document their level of income when applying for a mortgage loan. This can be difficult and/or time-consuming for some borrowers, such as independent contractors. However, a type of loan called the Stated Income Mortgage is available and requires substantially less documentation.

Basically, the lending institution allows a borrower applying for this type of mortgage to state his or her income amount, rather than having to prove it. The lender relies more heavily on other financial information about the borrower, and often demands a significant down payment to reduce the greater perceived risk it faces. The responsibility of making sure monthly earnings are actually high enough to keep up with the mortgage payments is left up to the borrower.

An example of this type of loan is the Alternative Stated Income Mortgage offered by Freddie Mac through various lenders. Approval for this loan is largely based upon the borrower’s credit score, and either fixed or adjustable rate options are available. However, it can only be used for purchasing single unit residential properties, and mandates a twenty-five percent (minimum $25k) down payment. This kind of mortgage also involves less exposure of financial details.

Some people have accused Stated Income mortgages of encouraging dishonesty about personal income levels. Senator Chuck Schumer’s web site indicates that he introduced legislation last year to ban Stated Income mortgages, along with various other non-traditional mortgage types. It could be argued that borrowers need to be responsible and only take out loans they can genuinely afford to pay back. However, it remains to be seen whether or not Stated Income mortgages substantially add to foreclosures, which would be to the detriment of both the lender and borrower.

Additionally, many banks do not require the confirmation of assets (they are also “stated”) when Stated Income mortgages are applied for. A number of national and local lending institutions issue these loans, including Amerisave, Nationwide Mortgage Loans, and Florida Mortgage Corporation. Certain lenders, such as CommercialBanc, offer this type of mortgage on business properties as well. Such mortgages are sometimes referred to with other names, like “low doc.”

Stated Income mortgages can appeal to some people who are not self-employed, as well. They save time and provide greater confidentiality in the application process. Also, as the Amerisave web site points out, someone who just gained employment a short time ago (and cannot document wages) may find this type of loan desirable.

With the recent housing crisis many people are wondering if they should try to refinance their home into a lower rate or simply sell and walk away. Each option has its own benefits and downsides, so determining which is best really depends on your specific situation.

With refinancing you have the benefit of being able to stay where you are. Not only is moving a hassle, it’s also a fairly expensive endeavor. Staying in your current home also allows your family to stay in a familiar neighborhood with your favorite shops, schools and families around you already.

Another benefit of refinancing is that it’s possible to get into a better mortgage rate than your existing one. Plus it’s possible that your house’s value could have increased to give you a cash-out when you refinance.

One downside to refinancing however is that it is getting more and more difficult these days. Lenders today are looking very carefully at borrowers’ credit scores, credit histories and debt-to-income ratios. If your credit is less than good you may find you’ll have a hard time getting a better rate and may in fact only be offered a higher rate for a refinanced mortgage.

The other option is selling your home. If your family has experienced changes, such as children moving out or even having new additions to the family, then this could be the better option. Or even something as small as if you had a job change that resulted in a longer commute you may want to consider moving. These things all affect the quality of your life. When paired with a barely manageable mortgage it doesn’t make much sense to stay.

Selling also makes sense if you are trying to avoid an impending foreclosure. If this is the case remember to talk it over with your lender. Foreclosure is expensive for all parties involved and they’ll likely want to help you out as best they can.

But, be careful when considering selling. If you’re doing it only to lower your monthly payment you may be on the wrong track. You should also factor in the costs of moving, how long you’ll be in the new home and if the cost of living is higher in the new neighborhood.

Whichever way you’re leaning be sure to make two lists. One should have the financial pros and cons and the other the emotional pros and cons. Measure these two against one another and decide if staying or selling makes more sense for your family based on the results.