There were 1.2 million foreclosure filings were reported last year in 2006, a 42 percent more than in the year 2005. Current home owner defaults and late payments are not just causing problems in the mortgage industry. More foreclosures are projected for this year of 2007. The situation is raising questions about the U.S. economy and if it will suffer from this subprime market squeeze.



What is the subprime squeeze about? Borrowers who have poor credit get approved for subprime loans. In 2005, foreclosure rates on subprime loans more than doubled, but it's important to remember that the subprime market is fragmented. The number of people owning homes has grown from 65 percent to 69 percent in the last ten years. Of those, half came from subprime lending. (Source: Federal Reserve Bank of Chicago.)

Companies specializing in subprime mortgages are the ones that are currently suffering, along with the financial institutions that lent money to them. That's why many people are concerned that the subprime squeeze will lead to more credit restrictions on borrowers. There are experts who believe that there's a big market segment of the population still out there who are actively seeking financing for new homes, and new technology companies have come up with new ways to help provide loans to these folks via a unique mortgage payment calculator that is so advanced that borrowers know immediately if they have the possibility of financing a purchase.

Many borrowers took out what amounted to uncollateralized personal loans to get into a home they couldn't afford. Now they are crying because they are loosing their homes. In many cases it happened because unscrupulous loan officers put many people into loans they shouldn't have been in. Greed up and down the line from investors to borrowers dominated this run up and it is fitting that all of the players are feeling their part of the pain.

"If you are stuck in the subprime squeeze crisis, ask yourself if you can pay your bills over the next 18 months, then tough it out. If not, sell your house now before your credit is ruined," said Eric Lesin, known as the Loan Warrior. "Unscrupulous and unskilled brokers are the root of all of this, and it is also the fault of borrowers as well. Many people placed bets that they could get in with little or no equity and they fudged their applications."

Now, the fundamental direction of the market is towards more traditional rules for loan approval. This return to traditional standards coupled with the robustness of the rest of the economy will help borrowers with savings and sufficient income to quickly absorb the formerly overpriced houses coming to us through foreclosure of former owners or renters.

There are now new technology tools that are certain to protect all parties including consumers, brokers and banks ... and even real estate agents who are now able to earn broker commissions.