Second Mortgage

So is the sub-prime mortgage market the primary reason for the steep down in the real-estate market?

It may not be certainly true most of it. It has more to do with bad mortgage brokers. They overstate income on stated deals, they have appraisers in their pocket to inflate values, they get the deal done, no matter how bad it may be.

 It’s been a buyers market for about a year now, and the problems in subprime have only been hitting the fan for a few months.

These loans tend to be isolated to areas where property values are low. Now it is important to understand that this explains why expensive homes are sitting on the market for extended periods of time.

The avg balance of these sub-prime loans will tell the story. A low avg balance means there is more to this story. Moreover, the sub-prime lenders extend mortgages to many people more money than they can actually afford.

Also, the house prices has sky rocketed to a point where many have to travel further out from cities to find a decent house for a decent price. Investors got ahead of themselves by buying these risk loans and now as more and more people default on their loans, the real estate stock market is falling.

It’s just like the tech boom of the late 90′s where people where investing into tech business that had no clear biz plan. Further, there is a benchmark rate that banks and financial institutions use to their top customers, prime.

It is often linked to the Federal Reserve’s interest rate for banks to borrow from the government. To be sub–or below–prime is simply that you don’t qualify for the best rates.

It will cost you more to borrow money because there is a higher risk that the money they loan won’t all come back.