Is the current mortagage crisis a result of employers cutting peoples salaries in half or whatever,?

Question

( and put huge amounts of money in the bosses pocket ),and somehow expecting them to still be able to afford the $300K -
$400K - or $500K house, and the things that are needed to keep them running, you know silly little things, like heat!!?

Answer 1

The current mortgage crisis is the result of people wanting more than they can afford. Prior to the advent of the sub-prime mortgage most had no choice but to purchase a home within their means. The initial low rate of a sub-prime mortgage allowed buyers with lousy credit and either little income or little control over spending to purchase way more than they can afford (not to mention, as you point out, "all the things that are needed to keep them running.") When the rates spike up, and there's no lottery win or tightening of expense control, the bottom falls out.

I don't know, nor have I heard of, any American workers having their paychecks reduced by 50% , but I have heard of many Americans spending more than they can afford, running up credit card debt buying frivilous things and living in homes that they can't afford to furnish.

While it's common practice to blame "bosses", "corporations" and the like, greed runs rampant at all levels.

Answer 2

No, the mortgage crisis is due to a lot of people buying homes with small down payment and financing them with low interest mortgages on which the interest rate increases after a period of time. Those increases suddenly hit the buyers with much larger monthly payment that they cannot afford. Many people hoped that by the time the interest rate increases went into effect, they will be able to sell the home at a profit, but the housing market slumped and it became more difficult to sell homes. There are people who bought 8-10 homes on speculation and are now losing them in foreclosures because they cannot sell them and they cannot pay the higher monthly payments.

Lenders are also to blame by lending money to weak buyers who do not have the earning capacity to repay the loans when the payments increase. Now those lenders are getting stuck with houses on which they have to foreclose.

Answer 3

No, I would disagree with that completely.
The problem started about four years ago when the Federal Reserve Bank dropped the Federal Funds rate to 1%. This caused the prime rate and therefore mortgage rates to drop accordingly. A lot of people thought that rates would stay low forever, but they couldn't. The fed funds rate at 1% doesn't make economic sense because that is lower than the inflation rate, so the fed funds rate had no place to go but up - and it did. Today, the Fed Funds rate is 5.25%. The Prime rate stays 3% higher than that, so it is now 8.25%.
As you may be aware, the bulk of your loan payment on a 30 year mortgage is interest, so when interest goes up, mortgage payments go way up.
It has nothing to do with wages, so your assertion is incorrect. It didn't help that lenders were offering exotic mortgages with an artificially low teaser rate that shot up to prime or more after a few years. Those people who have that type of mortgage are seeing their house payments double and more.

Bottom line - Wages are not going down. Interest rates are going up.

Answer 4

Interest rates are driven the Bond market. Foreclosures are driven by Employment. Historically, the housing market always has slumps