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Mortgage & Financial Referral Services

Weathering the Great Financial Meltdown of 2008 & The Subprime Mortgage Crisis: How you as a Mortgage holder can lessen the damage, or even BENEFIT!!!

What exactly is happening in the world of finance these days? More importantly, what's happening that will affect the future of our real estate investments here in New York state?

At this point,‘subprime mortgage crisis' is a term we're all familiar with - we hear it daily on the news, read about it in the papers, and see it's effects all around us. There is no debating the fact that the mortgage and real estate markets are in peril.

Borrowers were overenthusiastic about the fast-rising housing market, and obtained ‘difficult' mortgages, hoping to refinance. These mortgages were called 'subprime' mortgages, because in many cases, they were given to borrowers with poor or fair credit. Many of the borrowers were able to declare income without needing to prove to the bank that such income existed.

Many homeowners were obtaining mortgages called ARMs, or 'adjustable rate mortgages.' What this meant was that at a certain point in time, sometimes two or three (or more) years after the mortgage was written, the interest rate on that mortgage would 'reset,' or increase. Often, this would lead to a variable new monthly payment two or three times higher than the initial monthly payment. Many home buyers assumed, when borrowing, that they would be able to refinance before their interest rate rose.

When the US housing bubble finally burst, real estate values began falling all over the US, and refinancing became more difficult as lenders began to experience the real effects of the crisis. Easy terms, few qualifications, and loan incentives had helped fuel the high number of risky mortgages. When home prices failed to continue to rise, and ARM interest rates began to reset dizzyingly higher, foreclosures in the US increased at a breakneck pace.

As the number of defaults on ‘subprime' and adjustable rate mortgages (ARMs) began to climb quickly, mortgage lenders were affected as homeowners stopped paying their monthly mortgage payments. Sometimes the homeowners abandoned their properties, but more often, the lenders were forced to foreclose. Now, as a direct result, lenders have become much less willing to lend, even to borrowers who are qualified.

Secondary Markets, dealing in these very same ‘mortgages as securities', began to tumble, as events unfolded. The reason for this is that many of the banks which wrote these loans packaged the loans as "securitized investments," and sold them on the open market. In many cases, investors purchasing these "mortgage backed securities" were unaware of the risk associated with them.

This risk was present because these "mortgage backed securities" were backed with the very same subprime mortgages which were often given to borrowers with low credit scores. The defaults which resulted from these mortgages has trickled down into the secondary markets. Because of deregulation, banks were allowed to keep a higher percentage of their assets in these "mortgage backed securities" than had previously been allowable.

Thus, the banks which had a high percentage of their asset s in these securities experienced failure. The high number of banks across the country that have failed in these last many months have resulted directly from the housing crisis. The bailout is a direct consequence of the failures of many banks, and the hope is that subsequent failures will be prevented by such measures.

This crisis is having broad and widespread effects on both the national US economy, as well as the world economy. Worldwide, currencies are floundering, banks are reeling, real estate markets are slowing down, and commodity prices are uncertain. A global economic slowdown is unfolding, with increasing disinflation and/or hyperinflation, as well as wholesale and consumer price increases, resulting in less spending cash for the consumer. The results? A worldwide economic slowdown, a probable economic recession that knows no national borders, rampant commercial bankruptcies, and yet more mortgage defaults, keeping the whole process fueled wildly.

So, how does this affect you? What can be done to minimize your risk, and even take advantage of these tough times?? If you are interested in lower monthly payments, as well as owing less in total with lower interest rates, please consider your options.

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