Recently the most buzzed about topic in the real estate world, the quick end of the sub-prime mortgage industry. Ok, that is a bit exaggerated. The B paper market isn't over, just much more strenuous than it has been in the recent four years. Before today, so long as you had a job and weren't in jail you could get approved for a mortgage loan. All the sudden, with much harder lending policies, many sub prime borrowers are finding themselves either unable to refinance their properties or unable to buy a house at all.



Perhaps this is just the shockwave of the housing downfall? During the housing boom that ended in 2005, funds were given without concern into unconventional housing loans that enabled people to purchase houses with nothing down or without submitting evidence their ability to repay the loan. This was the fan that flamed the housing boom fire. Mortgage companies were completely aware of what they were doing all along. They had no justification offering some of their loan products to people of poor credit and in the thoughts of many people the very process of doing so constituted as predatory lending. I mean think about it, offering a couple who barely makes minimum wage a 3 year arm loan? Chances are high that this person is going to default on that loan. But the mortgage companies didn't care at all because the investors didn't care and so long as there were people to purchase the loans back there was no need to stop.

And suddenly Freddie Mac ended it all. At the end of February, government sponsored mortgage and securities investment organization known as Freddie Mac informed the real estate industry that they were tightening their standards and were no longer purchasing high risk mortgages made to borrowers with low, or sub-prime, credit history. The shockwave of this news could be felt all the way around the globe as stocks began to almost immediately drop. Without this government sponsored group to purchase back loans that lenders were developing, they would assuredly run out of capital to create any more loans. And with the rising rate of defaults on outstanding loans, that capital would be gone even faster and soon leave red ink. Due to this quick news, many sub prime lenders have stopped operations. At current count fourty-four mortgage lenders have closed their doors or radically scaled back their outfits, including sub prime goliath New Century. Now, lenders, financiers and buyers of mortgages are following suit as well.

The New Century instance is of unique alarm because of anxieties that trouble in the sub prime industry could spill over to prime mortgages, causing pain for many more lenders. The big question of the moment: What impact will the sub prime mortgage crisis have on the overall market? Sub-prime mortgages originated in 2006 may possibly end up resulting in more defaults than any previous year, according to research performed by investment bank UBS. Almost eight-percent of all loans originated this year are 60 days of more unpaid, up from 4.5% less than year ago. Foreclosure instances have doubled in the past year as well.

The pullback will be most ruthlessly burdened by minority and poor home buyers and owners who will experience issues in refinancing creative loans that they can no longer afford. Those wanting to purchase homes with a small down payment or none at all will also be expected to accept higher interest rates and will likely not be able to simply state their salaries without showing documentation like W-2s and check stubs.