Recently the most talked about issue in the real estate world, the abrupt end of the sub-prime lending industry. Ok, that is a tad exaggerated. The sub-prime market isn't gone, just much more strict than it has been in the last five years. Prior to this week, as long as you had a job and weren't in jail you could get qualified for a mortgage loan. Suddenly, with much more strict lending policies, many bad credit borrowers are realizing they are either unable to refinance their houses or unable to buy a home at all.



Perhaps this is just the ripple of the housing downfall? During the housing boom that ended in 2005, money was dumped without thought into creative housing loans that let people to purchase homes with little down or without verifying their yearly income. This was the gasoline that stoked the housing boom fire. Lenders were totally mindful of what they were doing all along. They had no business offering some of their loan products to people of sub prime credit and in the eyes of many people the very notion of doing so constituted as predatory lending. I mean come on, giving a person who barely makes minimum wage an interest only 3 year loan? What do you think is going to happen in 3 years? But the lenders didn't care at all because the investors didn't care and as long as there were investors to purchase the loans back there was no need to stop.

And suddenly Freddie Mac made their statement. At the end of February, government sponsored loan and securities investment organization known as Freddie Mac informed the business industry that they were tightening their standards and were no longer buying back high risk mortgages made to borrowers with low, or sub-prime, credit records. The aftermath of this announcement could be witnesses all throughout the globe as stocks began to immediately deflate. Without this government sponsored organization to purchase back loans that lenders were developing, they would quickly run out of cash to originate more loans. And with the rising rate of defaults on previously made loans, that capital would disappear even quicker and soon put them in the red. Due to this neck snaping news, many bad credit lenders have gone the way of the buffalo. At current count fourty four home loan lenders have shut down or drastically scaled back their companies, including bad credit leviathan New Century. Now, lenders, backers and purchasers of mortgages are pulling back the reins as well.

The New Century example is of unique worry because of anxieties that trouble in the bad credit industry could extend to A paper mortgages, causing pain for many more lenders. The big question of the day: What impact will the bad credit home loan crisis have on the general market? Sub prime mortgages originated in 2006 may possibly end up having more defaults than any previous year, according to explorations held by asset bank UBS. Nearly eight-percent of all loans originated this year are 60 days of more late, up from 4.5% a year ago. Foreclosure instances have doubled in the past year as well.

The pullback will be most ruthlessly felt by minority and poor home buyers and owners who will face problems in refinancing creative loans that they can no longer afford. Those wanting to purchase homes with a small down payment or none will also be required to suffer higher interest rates and will likely not be able to simply declare their salaries without providing documentation such as W-2s and paycheck stubs.