Subprime Mortgage Fallout

May 23, 2007 by Lucas Lechuga

An article posted today on CNN.com, entitled “Speed of subprime bust surprises lenders”, discusses how the speed and depth of the subprime mortgage fallout has surprised even those who had predicted its occurrence.  Banks have stopped offering a variety of mortgage loan products that were prevalently available last year.  There is no doubt that the subprime mortgage collapse has put a halt to the once red-hot real estate market and has pushed home prices lower as people across the country face foreclosure.  Many would argue that these risky loans acted as the fuel that drove home prices far higher than expected.

Banks, looking to stay afloat, have become much more flexible in negotiating outstanding mortgage debt in hopes to recover a good portion of their loans rather than being at the mercy of the foreclosure and auction processes.  Foreclosure inventories, and that of existing homes for sale, has gone up considerably this year.  Coupled with the large number of housing units coming to market throughout the country in the next 12-24 months, the real estate market may be in far worse condition than many had expected.

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