Mortgage Guide in 2008

We hear about the mortgage crisis daily on newspapers and TV, but as a consumer what does this mean to you? What would be the consequences of this sub-prime mortgage crisis? How does this affect you? To find the answers read on.

Generally, mortgages were financed by the banks. Banks lend money derived from the deposits they receive from their customers. So, the lending capacity of the banks is limited. Now, due to the current changes made to this system, the banks are unable to maintain a balance between lending and deposits. Today, banks are selling these mortgages to the bond markets and this has freed them from dependence on the deposits of the customers.

Due to these dramatic changes, more money was made available to those who wanted to buy homes. On the other hand, banks issued mortgages without much verification and they no longer worried about the prompt repayment of the mortgages. When more private players entered the market, more loans were given to customers even with poor credit histories. Also, they took in applications that were earlier rejected by government sponsored agencies. This has resulted in more private participation in the mortgage market.

More and more homeowners were lured by false promises made by brokers selling sub-prime mortgages. The brokers tempted them that the equity in their homes could be converted into cash by refinancing; however they failed to explain that the mortgage interest rates may double after two years. As a result, large number of foreclosure of mortgages occurred after some period due to the increasing interest rates. This process started first in the inner-city areas and then it spread to another popular areas like Washington, Nevada, Arizona, New York City, Southern California etc.

Now, those who wish to obtain mortgage during 2008 should follow some guidelines to remain out of danger. Foreclosures will continue for another two years and this will keep the interest rates variable and in some cases it may double. Due to the sub-prime loans, almost 2.4 million homeowners are in danger of foreclosure. Also, the rise in foreclosures had affected the price of homes which is the first one of its kind since the 1930s. Nearly 4 million unsold houses are depressing prices, thus forcing the builders to lower the prices to get rid of remaining inventories.

Now that the crisis has reached significant levels, the government has taken many measures to curtail the crisis. Fed has lowered its interest rates and many tax rebates are being given to the consumers to boost the economy affected largely by the sub-prime mortgage crisis.

You need to take note of all the above situations before entering any mortgage or prior to purchasing a property. You can acquire the services of a competent real estate professional to steer through your neighboring real estate market. The effects of the sub-prime crisis is felt everywhere, but you can determine the efficient strategy with the help of an experienced realtor. You can even make profit while selling or buying a property if you take the help of a professional that has thorough knowledge of the current real estate situation.

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