The Globe and Mail has done a great job telling the story of the collapse of the Sub Prime Mortgage market. You can read the whole story here or hang out here for my summary.
When the real estate market in the US was extremely hot a few short years ago. People were getting loans to buy homes with no documentation, less than stellar credit, financing more than the purchase price, qualifying for the loan based on a discounted teaser rate and investors were buying these loans up like they were going out of style. They were betting that the market would never cool off and home values would continue to rise, probably using the old adage ” they are not making any more real estate”. However what they failed to realize is that some of these people could not afford to continue making payments.
Reality set in last year when investors started to loose interest in buying ABCP from lenders whose pools of mortgages presented too high a risk. This combined with adjustable rate mortgages resetting to higher limits forcing people into foreclosure, created the perfect storm in the real estate market. People were loosing their homes, investors were loosing the shirts and those on the sidelines were unable to get in the game as sub prime and prime lenders were dropping like flies.
The end result is that the consumer has fewer options available to them for financing their home. However the strange part of it is that there is a silver lining. The lenders with questionable lending practices are now gone and homes that were out of the reach of some people are becoming a possibility. So do your home work and consult an investment advisor like my friend Steve