The subprime crisis

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by: stickystebee
Date of publish : Dec 18th 2008
Total views: 18
Word Count: 498

With today’s declining economy and rising unemployment rates it’s hard to understand how the current crisis will affect many Americans and their opportunities to buy, sell, or just keep a home. Many speculate that the explosion of the subprime loan was to blame. These are borrowers with a higher risk of defaulting on a loan, due to spotty payment history, low credit score, or bankruptcy leaving many facing property repossession. Subprime loans accounted for 35% of all mortgage loans at one time. Unfortunately, the best indicator of the future behavior is past behavior and these subprime borrowers proved that theory. Many did not put any money down and had 100% financing analysts think that this created the mindset that if they defaulted or were foreclosed on that they did not really lose much of their own money.
Also many borrowers and lenders opted for an ARM or (Adjustable Rate Mortgage) which means that the interest rate can fluctuate. This left many borrowers in a position where they could not afford the payments when the interest rate skyrocketed. As the subprime lending bubble started to pop the housing market flooded driving down the median home prices leaving many unable to refinance for a better or fixed mortgage rate. Since October of 2008 100% financing is no longer available and lenders have tightened their lending practices.

Many of the Mortgage giants have fallen in 2008 and this had a ripple effect on financial markets and global banking with decreased investment in the housing market this left little available funds to lend. Although this current economy is unstable, history has shown that buying a house is still a great investment in the long term. Borrowers have many options to get them started climbing the property ladder. They must have a down payment now that it is required, and also lenders will have more faith in lending to a borrower with at least a 5-10% down payment, and now that housing prices have plummeted due to the flooded market this is easier than ever. Borrowers who do not have enough individual income can also apply for a Joint Mortgage this can be risky but it gives borrowers the ability to double their income thus making it easier to get a loan.

A 50-year mortgage is also an option extending the length of the loan lowers the overall payments making it more affordable. The drawback to this is that the borrower ends up paying more in interest, but as their financial stability and income increases they can refinance for a shorter term. Foreclosed homes are in abundance and can be a great deal, but also can be a huge pitfall if the buyer is not well educated. The three types of foreclosures are auction, Pre-foreclosure, and REO (Real Estate Owned). They all have their benefits and down sides but the buyer needs to do the research in their state, and base on their decision on their personal financial situation.

About the Author

Struggling with your mortgage? Dont burry your head in the sand, sell and rent back your home with Swift Capital.

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