Upside Down Mortgage

The Subprime Mortgage Crisis Explained

Question: The Housing crisis?

I know there is a major issue with the housing industry and mortgages- like subprime rates, etc.... But could someone explain to me in laymen terms exactly what is going on and why it is such a big deal?

Answer: Bottom line a lot of people bought house they could not afford. Some of them were speculators (flippers) who bought houses or condos in hot markets (Florida, Vegas, California, etc.) hoping they could sell them even before they were completed at higher prices. This worked for a while and then the housing market sunk, so these people were stuck with homes they never planned on living in and cannot afford them. I do not feel sorry for them and do not feel the federal government (yours and my taxes) should bail them out. And so the bank who loaned them the money is stuck with a property they can't sell and get their money back.

Then there are people who bought homes or refinanced homes that they couldn't afford or to maintain a life style they couldn't afford and when they readjusted, couldn't afford the payments. I feel more sorry for these people, but then they did buy or refinanced more than they should have. I also feel little obligation to support their excessive life style. The banks don't want to be stuck with a property they cannot sell, so if they reach some compromise agreement between them and the homeowner that we don't have to pay for I'm fine with that. And I think many banks will. Better to get $0.80 back on their dollar than $0.40 on their dollar. And this is why CitiBank and others are writing down their assets.

Bottom line, don't borrow more than you can afford and don't speculate with money you don't have.

The Subprime Crisis Explained

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