Subprime housing meltdown

As the lending industry continues to implode frustrations between buyers and sellers are on the rise. With the collapse of the Subprime market shockwaves flow through the industry. Subprime loans were made and packaged into groups and then were rated and insured by bonding companies and then sold on the stock market. As the housing market slowed down and values dropped in certain segments of the market many people were upside down with their loan to value ratios. The bonding companies were forced to re-evaluate what they had insured as “A” product and then downgrade some of the packages thus unable to insure them and therefore sending ramifications throughout the stock market. This could be the first time we have seen the decline in the housing industry have such an affect on our global market.

We now have seen a band-aid approach to attempt to fix some of the lending woes with the increased loan amounts for FHA, Fannie Mae and Freddie Mac but then a one two punch right back with the new guidelines pertaining to FICO scores and penalties based on such. The new guidelines increase the cost for borrowers to obtain a loan with FICO scores of 719 and below an increase from the former score of 679 thus making it harder for more folks to get a loan. The brokers with wholesale access estimate that this knocks 30% to 40% of borrowers who could have gone conventional financing out of the game. The Fed is doing their part by reducing rates trying to keep the market alive as well as injecting liquidity into the agency mortgage-backed security market by allowing banks to trade these securities in as collateral for their loans.

So where does this leave us? Don’t be fooled, during the subprime lending craze many buyers entered the market prematurely buying that first home. With the current conditions in place it will force people to clean up their credit and save some money for a down payment and prepare themselves for the responsibility of home ownership. We probably had people who would have purchased in 2008, 2009 and 2010 enter the market early so it will be a slow road to recovery until then. A lot of inventory in the market place will force people to wait to get that sale that they want and builders may be forced to rent out some of their homes until we see the market come back.