in laymans terms, whats going on with the housing credit crunch. how bad is it really??

Question

i see certain stocks have gotten creamed, some (newcentury) gone pink sheets, whats behind this, and what can fix this??
thanks yahoooi's

Answer 1

its all due to bad credit

A while back, creditors decided that in order to increase the number of loans, they would offer credit to less qualified customers and thus became the birth of the subprime market. Subprime lenders are as risk, because a majority of people with bad credit have it for a reason . Since a whole new market opened up with subprime, the housing market boomed because people who couldnt buy a house started to purchase them. Now that housing costs are insanely expensive, inflation, the weak dollar, consumer prices, food prices etc, and the habits of many subprime borrowers all thrown in together, they are starting to default left and right Subprime has always been risky, which is why they have higher rates, and now they are growing into that risk, and showing that subprime borrowers have a much higher probability of defaulting on their loans, and so banks are becoming more stringent on their lending practices to help reduce the risk on the bank as they are losing millions to subprime defaults. However not all the fault is that of the borrowers. The lenders are just as much at fault for puting into place loan types that catered to the subprime market, which drastically increased the risk if they defaulted.

Answer 2

Because people thought that their homes where gold mines. Artificially high inflated prices where being paid with artificially low interest rates, people where financing out all the equity in their homes (like a magic ATM machine) to purchase even more. Then interest rates went up those that where over their head to begin with the sub prime market where the first to fall, now even those with good credit are feeling the pinch. The lending market tightened so there are less eligible buyers out there with an abundance of homes. Those that jumped in on the get rich quick flip a home have lost as the market is now correcting itself as it did with the tech bubble of the 90's. With the increases of taxes, energy, housing and such and wages at a stagnant 2-3% rise This was bound to happen, and this is only the beginning

Answer 3

The subprime lenders were just that. These lenders gave loans to people who had no business getting into these mortgages. They bought ARMs, thinking they could refinance into a fixed rate mortgage when the adjustments started to kick in. But when the housing market slumped and prices fell, some didn't have any equity in their homes and can't refinance.

What can fix this is already done. The sub-prime sharks are out of business, and the lenders still standing have tightened up their lending requirements.

I have not had much trouble finding financing for people with less than perfect credit.

The gloom and doom I hear in the media isn't quite happening in my area.

Answer 4

The housing credit problems are nowhere near as bad as they are being made out to be. Only about 1% of the entire mortgage market is having problems. The main problem is that people were being approved for loans based on the teaser interest rates that are below prime and now that the mortgage rate is going back up to a more reasonable amount, the people are unable to afford the realistic payment for the house. There isn't anything that can really be done with it, this will have to work itself out on its own.

Answer 5

in layman's terms---
the reason there is so much attention on the housing industry right now is because of the increase in defaulted loans resulting in foreclosures. for the last several years the loan industry has pushed these ARMs (adjustable rate mortgages) and now the monthly payments on these loans are increasing at a quick rate and the homebuyer cannot now afford this payment.
when they go to refi they learn not only is their payment going to continue to skyrocket, but their property value has dropped and now they cannot refi....so their only option (sometimes) is to walk away from the home.
Media and industry reports estimate this to continue for approximately another 24+ months.

so that's it...hope i could be of assistance.

good luck

Answer 6

There is a huge increase in forclosures on homes right now. (Last I heard they were up 500% from last year.) This is causing the rest of the housing market to suffer because no money is coming in.

Answer 7

In layman's terms it sucks. Certainly doesn't help that the fed keeps saying the situation is worse than we thought, we may have to raise interest rates.