The Aftermath of the Overnight Real Estate Lending..

The Aftermath of the Overnight Real Estate Lending Crash
Recently the most blogged about topic in the real estate industry, the abrupt end of the sub-prime mortgage industry. Ok, that is a little exaggerated. The sub-prime market isn't gone, just much more strenuous than it has been in the recent four years. Before this week, so long as you were breathing you could get approved for a mortgage loan. Now, with much tighter lending policies, many sub-prime borrowers are realizing they are either unable to refinance their homes or completely unable to buy a home at all.Is this just the aftermath of the housing backslide? During the housing boom that ended in 2005, money was tossed with abandon into exotic home loans that let people to buy houses with little down or without submitting evidence their yearly income. This was the oil that stoked the housing boom fire. Lenders were well aware of what they were doing the whole time. They had no ethical right offering some of their loan products to people of sub prime credit and in the minds of many people the very act of doing so was an example of predatory lending. I mean let's be real, offering a person who barely makes above minimum wage an interest only 3 year loan? What do you think is going to happen in 3 years? But the banks didn't care primarilyhonestly because the investors didn't care and so long as there were people to buy the loans back there was no need to stop.And suddenly Freddie Mac made their statement. On February 27th, government sponsored loan and securities investment organization known as Freddie Mac told the real estate markets that they were tightening their standards and were no longer purchasing high risk mortgages made to people with low, or sub-prime, credit records. The shockwave of this announcement could be felt all the way around the globe as stocks began to almost immediately sell off. Without this government sponsored unit to buy back loans that lenders were developing, they would quickly run out of cash to make more loans. And with the rising rate of defaults on active loans, that capital would disappear even faster and soon take them under. Due to this neck snaping change, many sub-prime lenders have closed their doors. At last count 44 home loan lenders have shut down or radically scaled back their companies, including sub-prime monster New Century. Now, lenders, investors and purchasers of mortgages are stopping as well.