| What Happened With the Mortgage Industry? | | | | borrow, the economy slows down. Much of our |
| We have all heard about the collapse of the sub prime | | | | economy is driven by credit, and a slow down in home |
| mortgage industry, but do we understand exactly what | | | | purchasing, new home construction and auto sales can |
| is involved? Certainly if you are a victim in this crisis, | | | | have a staggering effect on the economy as a whole. |
| you may have some idea about what is going on, but | | | | Problems that develop in one segment of the |
| few people are aware of how connected one part of | | | | economy have a spill over effect into other areas of |
| our economy is to the other. The collapse of the sub | | | | the economy. |
| prime industry has affected everyone in the housing | | | | How does it Affect the Consumer? |
| market, buyers and sellers, those with sub prime | | | | The effect of the current credit crunch on the |
| mortgages and those without. It has also affected | | | | consumer that is interested in purchasing a home can |
| contractors, real estate agents and anyone else who | | | | be negative. In times of a credit crunch, lenders are |
| makes a living in the housing industry. | | | | less likelihood to lend money, the charge higher interest |
| To simplify the problem that developed in the | | | | rates and tighten their lending standards. With as much |
| mortgage industry, you first need to understand that it | | | | as 40% of the population considered to be problems |
| is generally assumed that housing prices will always | | | | borrowers, it is easy to see how the current credit |
| increase. While this is true over the long term, in the | | | | crunch affects the mortgage industry. |
| short term housing prices had risen rapidly to an | | | | Interested in Buying? |
| artificial high. At the same time, many mortgage | | | | If you are looking for a home, don't let the current |
| lenders where giving sub prime mortgages. A sub | | | | credit crunch scare you away. Although lenders are |
| prime mortgage is one that is considered more risky | | | | nervous right now, if you are considered a good risk, |
| that a traditional, or prime, mortgage. Sub prime | | | | there is money available. How to know if you are a |
| mortgages went to people with problem credit, were | | | | good risk? Check your credit reports and report any |
| buying a more expensive house than a traditional | | | | errors. Make sure that you pay your bills, both utility bills |
| lender would loan, or had some other quirk that made | | | | and credit card bills, before the due date. Know how |
| them unattractive to a traditional lender. Many of these | | | | much home you can comfortably afford, and do not |
| mortgages had an adjustable interest rate. When | | | | go over that amount. For the savvy home buyer there |
| interest rates increased, the monthly mortgage | | | | are many benefits to the current credit crunch. |
| payment increased as well. Trying to refinance | | | | What if your credit is not so perfect? It is still possible |
| became a nightmare as the bottom fell out of the | | | | to get a loan. Banks are going to be less interested in |
| housing market, and homes were appraising for much | | | | nontraditional loans, such as no-document loans or |
| less than the amount that was owed on them. | | | | interest only loans. While you house shop make every |
| Foreclosures increased, and the cycle expanded, as | | | | effort to reduce your debt and pay your bills on time. |
| other credit markets became nervous and less willing | | | | Have 20% of the asking price available as a down |
| to loan money, which is one of the driving forces of | | | | payment to eliminate the need for private mortgage |
| our economy. | | | | insurance, a move that can save you over a hundred |
| What is a Credit Crunch? | | | | dollars each month. If you are turned down for a loan, |
| Simply put, a credit crunch is what happens when | | | | ask the lender what you can do to improve your credit |
| banks become less willing to lend money, or interest | | | | and how long you should wait before you apply again. |
| rates rise, making it more expensive to borrow money. | | | | While the current credit crunch has tightened up the |
| A credit crunch has a trickle down effect on the | | | | mortgage industry, it has not stopped it. |
| economy as a whole. When money is more difficult to | | | | |