What does it mean to default on a mortgage? what are subprime mortgages and how do the two relate?

Question

Who are the people that are defaulting on their mortgages? which companies (industries) are involved in this?
Additionally does this go on in some regions more than in others?
what effects does it have on the economy and our daily lives?
what can be done to prevent further morgage defaults and fix the tumbling economy?
what shouldve been done earlier for this crisis to never have started?
what will happen if this problem isn't fixed in the long run?

Answer 1

Defaulting on a mortgage means you do not pay the mortgage for which you are a borrower.

Sub-prime mortgages are to borrowers that do not qualify for a "prime" mortgage due to poor credit (this can either be a lack of a credit history or poor credit history).

All groups are defaulting on mortgages; however, sub-prime borrowers make up a significant percentage of these, especially those who took out Adjustable Rate Mortgages (ARMs) over the past few years. Many of these mortgages reset earlier this year when rates were higher, resulting in substantial increases in monthly mortgage payments. Often increasing beyond the borrowers' means.

This is occurring across the country, but most predominately in places like Florida, Nevada, and California.

As for the effect on the economy, this is having a big impact. It is resulting in higher foreclosures, which is resulting in negative pressures on home prices. It has caused a tightening in the mortgage markets, with mortgages currently more difficult to obtain and the more "exotic" type mortgages are nearly impossible, and the markets have been impacted as investors are concerned about bank losses and the availability of money. The impacts are quite numerous, but those are some examples.

Underwriting standards need to remain tight. ARMs need to continue to be underwritten based on the borrowers' ability to pay, AFTER pricing adjustements. As for the economy, the Feds will need to continue to balance growth with inflation. This will be difficult due to rising energy costs which are driving up prices, while at the same time placing downward pressure on growth (much like stagflation in the 1970s when growth was slow but inflation was high).

The underwriting of mortgages should have been much more strict the whole time. People got too carried away with 100+% finanacing, ARMs, and I/O loans.

In the long run, if not fixed, foreclosures will continue to rise and the residential market will bring the economy into a recession.

Good luck with the rest of your homework.

Answer 2

A mortgage default generally means the borrower has not made a monthly mortgage payment in 3 months.

A subprime mortgage is a mortgage but the borrower had a less than acceptable credit score and now can't afford the adjusted mortgage payment because the mortgage was based on an adjustable interest rate.

California & Florida have the highest subprime default rates.

The lender stops receiving interest income which was used to fund other financial activities.

Answer 3

1. The people who are defaulting on their motgages are not able to make the mortgage payments.
2. Too many lenders involved to list!
3. California and florida have the highest default rates because of housing being overpriced!
4. Most consumers are tapped out for cash and have less to spend, this will drive the economy downward.
5. Borrowers have to live within their means! Not everyone can afford a McMansion! Lenders will have to offer a longer term like 40 years on a mortgage at fixed rates the buyers can afford to stop the market from tumbling!
6. This is the big one! What could have been done earlier in this crisis to prevent it is lenders not doing just MANUAL UNDERWRITING and not checking peoples credit reports and score!!!! This practice led to the "liar loan" and consumers got drunk with greed and spent more than they could afford!!!! No one bothered to check a consumers debt to credit ratio while being prequalified for a mortgage! This is why credit reports and scores are so important! Lenders took advantage of the shortsightedness of buyers just to collect their commissions and soon went out of business!
7. Those who forget the past will be doomed to repeat it!
Borrowers will have to learn to live within their means and spend what you can afford and learn how to use credit wisely! That is the only thing that will fix this in the long run!

Answer 4

The subprime mortgage is lending to people that have a track record of not paying the money They borrow. They usually charge a a higher interest rate.

Defaulting on a loan basically is not paying as agreed in the contract you signed.

Answer 5

Too many questions ...

Default means failing to pay the monthly Montage repayment for at least 3 months in a row ...

The Mortgage provider applies to the courts to repossess your house and then sells it off for whatever they can get .. if that's not enough to repay the whole Mortgage they might make you Bankrupt ..

In the UK, once you have been evicted, if you don't have any money, the Council has to rehouse you

Answer 6

That's a good question!