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A Second Financial Crisis?

There has been over $1 trillion wrapped up in subprime loans over the last ten years, much of which has been written off as a loss. What most Americans do not know is that there is over $1.5 trillio...

There has been over $1 trillion wrapped up in subprime loans over the last ten years, much of which has been written off as a loss. What most Americans do not know is that there is over $1.5 trillion tied up in "exotic" mortgage loans including Alt-A and Option ARMs. Many of these exotic mortgages are scheduled to reset in the next six to eighteen months and could cause a crisis even larger than that of the subprime crisis.

Many of the borrowers of "exotic" mortgages had the perception that the economy and their financial standing would get better before their rates reset. Sadly, the opposite is true on both of those fronts. The "exotic" mortgages offered very low rates for the first few years of the mortgage; many of them offering rates below 5%. The problem that will cause our next crisis is that many of these rates are going to jump over 8 or 9%. Many of the same people that desired a stronger financial life are going to see their savings crumble as their mortgage payments could increase as much as 50% due to the reset of their loan.

It is highly likely that we are getting close to the end of the subprime crisis which will greatly help the housing market. Hopefully, those who took out "exotic" mortgages will be able to afford the increased payments because if they cannot, we could see a problem even worse than the subprime crisis. Many of these borrowers are prime borrowers as well. It is quite unnerving to know that prime borrowers could very well start defaulting on their homes. Foreclosures will follow and it will be deju vu all over againFree Reprint Articles, but even worse because the economy has been in a downward spiral for the last fifteen months.

Article Tags: Exotic Mortgages, Subprime Crisis

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ABOUT THE AUTHOR


Subprime Blogger is your mortgage news source on the internet. For information about the subprime mortgage market as well as weekly mortgage rate predictions, make sure to check out Subprime Blogger. It also offers the direction of mortgage rates including subprime rates.



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