We hear a lot about the subprime mortgage crisis, and how borrowers with bad credit have landed themselves in positions where they now have upside down mortgages. We hear about these subprime borrowers who maybe shouldn’t have been approved because of their poor credit history. What we don’t hear about are the people who had good credit but are now caught in negative equity situations.

Right now, there is also an increase in foreclosures at the higher end of the market. Forbes reports on this specific negative equity situation:

Many of those in the high-end foreclosure market were traditionally good borrowers with strong credit scores, unlike the profile of the typical subprime borrower. Still, the same gaffes occurred on the lending approval side, as people were given excessively high loans, based on the presumption that housing prices would continue upward. “There were people with $100,000 incomes getting million-dollar loans,” says Wendell Cox, founder of Demographia, a St. Louis-based demographics and housing research company.

Those at the upper end of middle class are just as likely as others to make mistakes in buying a home they can’t really afford. Indeed, it can seem tempting to get a so-called “McMansion” with an ARM or an interest-only loan. It allows you to be qualified for more than you could otherwise afford. And, since you have good credit — and may even have a down payment — it is much easier for you to get the approval you need for a home that may actually be out of your price range. Unfortunately, when the rate re-sets, many find themselves in the same position as subprime borrowers. And foreclosures rise.

I know first hand how eager some mortgage lenders can be to get that big home loan. When I decided it was time to buy, there were mortgage lenders that could qualify me for more than twice the mortgage amount I have on my current home. One lender in particular kept touting the virtues of a 5/1 ARM. Another insisted that I could buy a home in swanky “Cliffside” if I got an interest only loan.

For a brief while, it was a heady feeling. Could I really get that kind of a home? But after thinking about it, common sense set in. I knew I wanted a fixed rate going in, why was I letting these mortgage lenders push me in another direction. I went with a mortgage broker who listened to my needs, and approved my home mortgage loan in an amount that I am comfortable with.

The current negative equity situations across the country teach a valuable lesson: Just because you can get approved for a certain loan amount doesn’t mean you should take it.

Tags: negative equity, mortgage lenders, home mortgage loan, mortgage loan blog,
upside down mortgages, subprime borrowers, McMansions

Tags: Alphonso R Johnson, Bush Administration, Bush Administration scandal, home mortgage loan, mortgage loan blog, resigns Housing secretary, subprime market crash