A Layman's Introduction To The Subprime Mortgage Crisis

[doppelganger]

This powerpoint is an excellent and easy to understand introduction to what the subprime mortgate crisis is about and how it occurred.

The basic lie at the bottom of all this is that housing values always increase. The unavoidable economic reality is, however, that housing values can never for any significant length of time increase at rates above and beyond real wages, because somebody has to buy or lease the housing. Because of the myth of forever increasing housing values, some dirty deals were cut to give really bad loans to a lot people who couldn't afford the housing because the market was being artificially inflated way over the real values in this vicious cycle. The bubble finally burst.

 

[sandandfoam]

The bubble has burst in Ireland too.
I heard on the radio today that the banks are giving out 90%mortgages as a maximum now as they are expecting house prices to fall by a further 10% this year.

 

[Reverend Rick]

The biggest problem was people kept refinancing and cashing out the equity in their homes. With the aid of credit cards, they treated their equity like income and are now upside down with their mortgages. When the default rate climbs, so does the interest rate of a home loan keeping real estate unaffordable for the common person. When people can't buy homes, that puts others out of business. New home construction was the one industry that could not be shipped overseas.

The next issue will be credit cards. People are going to loose their credit rating and interest rates will make it impossible to pay off your balance. Faced with a stacked deck, folks will stop paying their bills.

Car loans are defaulting. Buy now pay later will be a thing of the past and the American way of life will be in shambles.

Bailing out the home owner who exorcized poor judgement will only add to the problems of social security and health insurance burdens put upon the government which means higher taxes on anyone who still has a job.

Not bailing out the home loan crisis means lower home values for every American who does pay their mortgage on time. This is a lose lose proposition.

Even if you can avert a sub prime meltdown, most folks will be upside down on their home loan and will walk away anyway and find a better deal starting from scratch.

 

[Smoke]

We were kind of fortunate that we bought while the bubble was still expanding, because we had the income but our credit wasn't too good. So we were able to get one of those loans that they were handing out like candy, with low fixed payments for two years. Then once we owned a house, our credit improved -- partly because in the process of buying I found out somebody else had been ruining my credit by using my Social Security Number - and we were able to refinance before the payments went up. So the housing bubble kind of worked for us.

Of course, we probably can't sell our house; houses aren't moving at all in our market now. But we plan to keep it for the foreseeable future anyway.