Bankruptcy Information Blog

The subprime crisis is already here

Back in 2002 when I bought my condo, there were no obvious signs to me that what was going on in the mortgage market were the beginning stages of the current subprime crisis. I knew I was making the right decision to buy a place while I could still afford one and I saw how property values jumped significantly in the next two years. However, all along I had this feeling that this rapid growth of the market could not be normal and that it could not possibly benefit everyone. I also figured that at some point I would have to sell my condo and I would most likely want to sell it at fair market and maybe just a tad more.

Would someone really be willing to pay me double the price of what I paid for it a couple years ago? This really puzzled me, and even though I thought it would be great to make that much money, I couldn’t help to feel a little concerned for whoever ended up buying my condo. Would they finance with sub-prime or conventional loans? How will they manage such a large monthly payment? Will they continue to enjoy the market growth like I did?

It can’t grow forever, what goes up must in deed come down, and that’s what we’re witnessing here. It’s a nose dive of a decline for the housing market and it really is difficult to watch. The same thing goes for the stock market, there’s usually a period of aggressive growth that must eventually fix itself. I trade very moderately in the stock market so I keep up with it, but it’s definitely not a huge worry for me.

Though the housing market, which everyone is part of in one way or another, is now suffering from a subprime mortgage crisis, which in turn has an impact on the overall economic growth. As more mortgages default, there’s less confidence in buying homes, and we’re ending up with a surplus of homes across the country, causing a very dramatic decline in new home construction and prices of homes. All of this builds the downward pressure that weighs on the overall growth.

Interest rates on a number of subprime and ARM loans are due to go up through 2008. However, to the benefit of home owners who may be finding themselves on the brink of bankruptcy, the US treasury, backed by US legislators, is enabling the deferment of interest adjustments in order to begin working towards stimulating the economy and re-establishing confidence in consumers and financial markets.

To begin a resolution to the subprime crisis, one of the measures that can be taken in the future through legislation is to limit the numbers of different financial products that revolve around these types of loans and to force revisiting the metrics to qualify consumers for these types of loans. Salaries will need to keep up with inflation and unemployment needs to stay low. Finally, the housing market’s steady decline needs to be interrupted as soon as possible, but this won’t be possible without more aggressive efforts from the US treasury and the government.

Meanwhile, if you’re finding yourself in the same situation that millions of homeowners are in right now, where you’re not making your mortgage payment and considering bankruptcy. You need to know that there maybe alternatives available to you, banks and mortgage lenders are starting to resort to offering their customers loan modifications and or encouraging a short sale. Read more about loan modifications and other free resources here, it may be just what you need to save your home.

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Are we in a recession yet?

Are we already in a recession? I have been reading up on this subject and found different opinions on the recession issue. Many still think that we’re not, because technology companies like Google and Facebook seem to be hiring at a steady pace, while startup companies are still being funded, so these would be signs that things are going well or at least that there’s an upbeat attitude over all.

I’m not a doom and gloom kind of guy and I hate to be right when it comes to negative predictions, which I don’t often make. But we don’t revolve around a partially good economy, the housing crisis and sub prime lending mess are already here and they are costing millions everyday in defaulted loans. Bankruptcy cases are climbing and people are losing their homes and ruining their financial lives. I really do wonder what is going to happen with all those homes left behind when there’s no more demand.

So my findings tell me that while many economic experts believe we’re not in a recession, no one is denying that growth has slowed down everywhere and that to me signifies that a recession has started. Officially the National Bureau of Economic Research (NBER) will declare a recession when we’re half way through it. I fail to see the sense in that.

The only growth I seem to have any control over is my savings account and maybe my 401k if I keep up with it and make necessary changes when market conditions begin to move downward. I think we’re all thinking about the same thing right about now, which is “what’s going to happen in the next year?” Will we be in full recession and what will the Fed’s plan be to get us out of it. Will it be another drop in interest rates to encourage borrowing and spending again? I’m dying to know where we’re headed.

Till then all we can do to gain some protection is to adhere to more conservative spending. Only spend on true necessities and stash away the rest of your available cash, looks like it may turn out to be a tough winter. Many people will argue that this is bad for the economy, but does continuing to spend money really extend as something that’s collectively good for all? Do I really need to buy just to buy as long as it’s good for the economy? Seems very unfair to put that responsibility on consumers in a time like this.

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