Who’s To Blame For The Sub Prime Mortgage Meltdown And Foreclosures?

Posted on October 16th, 2007 by saman

Here’s a seemingly simple question with a complex, multi-part answer. In general, however, the big increase in foreclosures is caused by all people who took part in making these loans starting with Wall Street, the brokers who brought them to life and the mortgage banker who funded them. Last, but certainly not least, there are the tens of thousands of borrowers who took advantage of the lax credit policies and low or zero down payments and assumed liabilities that otherwise would have been unaffordable. Perhaps most amazing of all, there are a sizeable number of borrowers who, thanks to good credit scores, could easily have qualified for conventional fixed mortgages but were soothsaid into these higher risk loans by predatory lenders.

Experts are saying that it’s time to accept the fact that the well-known American Dream of home ownership just isn’t right for everyone. Others worry that the sub prime meltdown and foreclosures may carry over to mainstream lenders and negatively affect the entire economy. And there is a growing number of responsible financial experts and economists who are urging the federal government to enact legislation to both help homeowners in default and prevent future lending of high risk loans to unqualified borrowers. At the same time, all this has caused a very-real credit crunch that is starting to affect new home developers by depressing prices and keeping buyers from making new home purchases.

In he meantime, delinquencies in home mortgages continue to rise, particularly in California, Arizona, Florida and Nevada where investors had made the greatest efforts to buy and hen re-sell homes for a profit. In these states, there is now a disproportionally-high number of delinquent mortgages when compared to the remainder of the United States. In Nevada, for example, more than thrity-two percent of existing homes are currently more than ninety days late or are already in foreclosure compared to only thirteen percent nationwide. This is because most of these in default are owners of second homes bought mainly for investment purposes.

Most of these problems occur with adjustable rate mortgages (ARMs), where a sudden upward escalation in the amount of monthly payments due to lenders suddenly exceeds the owner’s ability to pay. While the blame goes to a great many sources, it is clear that the homeowners and many of the lenders are now paying the highest price. And one thing seems certain: Our economy is returning to a state where the only people who will qualify for conventional fixed-rate loans will be both credit worthy and able to make a more substatial downpayment.