The Mortgage Meltdown
The mortgage meltdown continues to affect many people.
It all started around 2007 with a rise in foreclosures along with subprime mortgage difficulties. The consequence of this was a drop in securities covered by these mortgages. Prior to 2008 the amount of low quality subprime mortgages rose from an average of eight percent up to twenty percent. Most of these were adjustable rate type mortgages. This meant that the new home owner had a low interest rate for the first few years, and then they went up dramatically making the monthly payment outwith their financial reach. Personal debt across the country increased greatly during this time.
Many of these types of mortgage loans were given to buyers with poor credit histories, often with very low down payments. In many cases their financial backgrounds were not investigated via credit reports or tax histories. Therefore many blame the private lending institutions desire for short term profit.
Home prices were at their greatest levels during 2006. After this they began to decline dramatically. At the crest many homeowners took out home equity loans. This refinancing left them in trouble once prices went down.
The result of all this was that securities covered by mortgages lost a great deal of their value. Many investors turned away from purchasing these types of mortgage backed securities and so the financial system started to collapse. The consequence was that credit controls got stricter and countries faced a downturn in their economies.
There is now a glut of foreclosures across the country. Also many people are left paying of a mortgage that is well above the current value of their homes. For them the immediate future does not look particularly bright either.