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The Subprime Mortgage Crisis has affected millions of Property Buyers and Property Sellers across the world. Are you affected by it? Many people are affected by it every day and don't really know what it is. So what exactly is the Subprime Mortgage Crisis and how does it affect you? The Subprime Mortgage Crisis is what the United States economy is going through currently. What this means is that an abnormally high amount of houses are going through foreclosure. What caused this exactly? Over the last few years, lending practices continually got more and more lenient. Banks and lenders made their qualifications less and less strict. Whereas in the old days, buyers were required to put 20% down on a house, many mortgages were given with no down payment. Housing prices had historically gone up and up. This meant that some buyers were encouraged by lenders to buy more house than they should. Buyers who had no money in savings went out and bought houses that they could have never purchased under the old standards. The way they accomplished this was through the use of Subprime Mortgages and Adjustable Rate Mortgages. An Adjustable Rate Mortgage is exactly what it sounds like. You agree to a mortgage and the interest rate adjusts based on the prime interest rate. At the time, this sounded like a great deal to home buyers. They could go out and buy the house of their dreams with a low interest rate and a low payment. Then they had the thought in their minds that they could just refinance the house in a few years when the house value went up. Then, all of a sudden, the housing bubble burst. This means that housing prices stopped climbing. In fact, housing prices started to fall for the first time in a long time. In combination with this, the prime interest rate started to go up. This meant that the people who got involved in an Adjustable Rate Mortgage got higher mortgage payments. In many cases, over the last few years, their payments have doubled. When you're barely getting by and paying a $1000 per month mortgage payment, a $2000 payment will bankrupt you. Many home buyers were faced with this very scenario and simply gave the houses back to the banks, regarless of Donald Trump's advice to call the banks and try to work out individual arrangements with them. With the high number of defaults, banks were left with excess inventory of houses and not enough money to continue operations. This has meant that many of these banks that took on loans that they shouldn't have are now bankrupt. Besides the people who defaulted on the loans, the banks are now affected as well. In turn, anyone who had uninsured deposits in these banks lost their money also. People who didn't have any problem with their mortgage or house were negatively affected as well. The good thing about this whole process is that it is temporary. Just as it has happened many other times in our history, the economy will rebound. House prices will rise again and the Subprime Mortgage Crisis will be a thing of the past. Just keep plugging along and this "crisis" will be only a distant memory for House Buyers and House Sellers. |
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