what do you think about subprime crisis ?

Answer 1

I saw this coming quite a few years ago. There were too many lenders making up too many "exotic" loan programs where people with not so good credit could lie about their income and get loans with "teaser" rates. Rather than qualifing these people first with 30 year fixed and figuring out exactly how much home is affordable, many loan officers did not bother to inform their client of the possible ramifications of these "exotic" loan programs such as the Pay Option Arms where you are given a choice of three monthly payment options month to month. Many people chose the lower payment which caused negative amortization each month they used that option and now they have a home that is worth less than the pricipal balance of their mortgage. Now the introductory periods are ending and they have to pay principal and interest on fluctuating rates and are finding they cannot afford the payment and slowly but surely default and wind up being foreclosed on. There are many new housing tracts here in California where 80 to 90 percent of the homes are in foreclosure and the few homes that are not...the values have gone way down and these people who are making their mortgage payments on time everytime are ending up in the same boat with a home that is less in value with a principal balance higher that what the home is worth. It's a dominoe effect basically and it appears to me that the subprime crisis little by little is spilling over into the prime area.

Answer 2

The Feds dropped rates too low, and once everyone bought homes (some of which they couldn't afford) they raised rates too fast. Adjustable mortgages don't adjust so abruptly when you raise rates slowly. In an effort to keep a hold of inflation they went the other way. You'll see them lower rates in no time once this keeps spreading beyond the subprime market (and into Alt-A, which it's doing).

Keep in mind many of the adjustable mortgages haven't even adjusted yet, they will next year, so more is to come.

Answer 3

I think it was brought on by a whole lot of things ranging from appraisers who lied about how much homes were worth so people could qualify for $0 down 100% loans, greedy mortgage companies, customers who bought trade lines so they could boost their credit scores and qualify for mortgages that they actually did not qualify for and stupid buyers who signed up for adjustable mortgages thinking that the property would be worth so much more when the higher rates kicked in that they could sell and make a profit without thinking about making the higher payments.

So to make a long story short, the mortgage companies and the customers alike are getting what they deserve for being greedy and stupid.

Will it hurt? Sure and a lot of people will lose their homes and some companies will file bankruptcy. But thats what happens when you gamble. Sometimes you win and sometimes you lose.

Answer 4

The federal reserve created the subprime crisis by lowering the federal funds rate. This was done to prevent deflation in the wake of 9/11. Unfortunately, the federal funds rate is a poor tool for preventing deflation, because in order for it to matter, someone has to borrow money(i.e. create debt), whether they can pay it back, or not.

Answer 5

It is difficult to swallow, however, the mortgage industry via all types of teaser programs basically enabled this crisis to happen. There were to many programs made available at one hundred percent loan to value, and investors for the most part jumped in and took advantage, by forcing the valuations up on houses, or simple paying for a bogus appraisal, that was way over valued, and pulled out thousands and tens of thousands of extra dollars when buying the property. A great deal of the problem is due to fraud and the remaining problems were created by permitting people to buy homes that they could not other wise afford via payment deferred loan programs, based on negative amortization or buy downs on the starting interest rate. These loans were invented to help deserving persons that were in jobs that would allow their incomes to increase as the mortgage rate would increase. The latter about three to five and seven to ten years later. These were known as Cofi loans, options arms, buy downs and various other names. People got into them and then found that the values of these new houses, theirs included, were not increasing as fast as the negative amortization, which ultimately made them have an upside down debt on the house. In a devaluating real estate market, which is worse in certain cities, people can't sell their house for what is owed on it, so they simply walk away or wait until they are foreclosed on and evicted. The fraud coupled with the inoncents, crippled the value of the securitized mortgage backed securities, and the demands from the investment houses exceeded the capablities of the mortgage companies that originated and sold them, so they went into receivership, chpt 11 bankruptcy; or simply closed their doors. With secondary market no longer buying these type of loans the loan programs stopped and caused additional back lash on the industry forcing many loan officers and originators out of the industry. The worse may be upon us, but it is going to last through next year and into the next, as the housing industry is over built, espcially in certain markets, and the flood of foreclosed properties on the market will mean further devaluation of the real estate in many markets, which will continue to fuel a slow down in real estate activity, especially in new construction, and even more obvious in the higher end housing market, (those properties selling for more than about $375,000.00, and certainly those selling for more.
Finally, without all these teaser mortgage programs available these houses will sit longer as the qualified number of buyers has been greatly diminished as these high ratio loans, with teaser payments are fast disappearing. It is a mess, and will, in my guess be about mid 2009, before things get going strong again.

Answer 6

It's putting me out of business....

But morally, I think that we shouldn't be lending to people who can't afford the mortgage anyway. It's like, "sign here and file bankruptcy in a couple years."

Answer 7

i would like to be in the card board box business - i do believe we will have a lot of want be high rollers becoming homeless