Question: What is the Sub-Prime Mortgage crisis and how does it affect us?
Answer: The sub prime Mortgage crisis comes from the result of the banks greed of making more money.
Banks started extending credit to people who should have not be given loans to start with. The sub-prime loans were the loans offered to rated “C” borrowers.
In regards to creditworthiness, there are three kinds of loans offered to borrowers:
- Prime (“A” Paper)……………..A (700+ Fico)
- Alt -A (Alternate “A” Paper)…..B (620-700 Fico)
- Sub-Prime……………C (500-620 Fico)
Even though, statistically speaking…70% of the sub-prime loans would end up in default, the banks ignored this fact and still offered loans to people with what is considered bad credit.
As we already know…Thousands of loans went into default.
As a result, many banks ended up in bankruptcy. The banks that did not go into bankruptcy changed their guidelines making it harder for people to qualify for a loan. And, most of the banks nowadays only offer loans to borrowers whose FICO score is over 700 or more and the borrower has to come up with at lest of 5% – 10% down.
Before the sub-prime crisis, lenders would offered 100% financing to borrowers with a fico score over 600.
There was a saying that said “As you long as you were breathing, you would qualify for a loan.” And as funny as this sounds…this was true. Now, what does the sub-prime crisis means to us?
The sub-prime crisis has been like a chain reaction to the US economy. As more and more properties were going into foreclosure, property values would drop. The less money in equity meant less money for homeowners to spend in other industries. For example, homeowners were not buying cars anymore, or expanding or remodeling their homes, or buying furniture, or taking expensive trips, etc.
If you ask anybody that works in construction, they would tell you that work is scarce. Since the sales have dropped in almost any industry, this has caused business owners to lay off lots of people and others are about to be laid off.
If you still have a job, be thankful, work hard and take care of your job. There is a lot of people out there that don’t have a clue of where to find a decent job. And if you love this country as much as we do, pray for the economy of the US. Hope the sub prime mortgage crisis information answers your questions
