Let’s play the blame game!
By admin | May 18, 2007
Who is at fault for the Sub Prime fallout? Well that’s a coin flip, is the Housing Market to blame or can some of that burden fall on the Financial Industry as well. In the end, the housing market will bear the chore of fixing the problem itself.
Half of the Sub Prime loans were taken out to purchase homes to live in and the other half was taken out to fund other expenses such as inventing in the growing real estate market.
In today’s world, we must have a villain and a victim and the victim in many cases is the person who took out the loan itself. Many individuals purchased homes that were much too expensive for them but were coaxed by evil people that they could afford it. Riigght. Now many of these individuals are defaulting on their current loans and going through the foreclosure process.
But the financial market is feeling the pains of the fall out as well.
Lenders who took too much risk — or failed to know how much risk they had undertaken — are experiencing huge write offs. More than three dozen naïve or deceitful mortgage brokers have already closed. The origination volume of sub prime and other alternative mortgages has dropped nearly 40%.
The FHA is also looking to expand as it will soon issue larger mortgages. And congress may also impose stiffer penalties when mortgages laws are violated and even prohibit contract terms aimed to trap homeowners.
What does this all mean for future homeowners? Well with bad credit reserves on the rise, everyone will pay a higher mortgage rate and new homeownership rates will fall.
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