US Subprime Loan Housing Disaster

It is already too late to avoid a disaster in the United States housing market. The big questions now are how bad will it get and how long will a severe downturn last?

The problem is that the party is over in the sub prime loan lending market as home owners and borrowers who took out the risky loans over the past few years are faced with reset adjustments to their monthly loan payments that are far in excess of what they can pay.

Many of these borrowers didn’t fully understand the terms on these toxic loans at the time they closed on them. Borrowers who were delighted to take out loans requiring say $1,500 in monthly payments are now horrified to find their payments are being reset at nearly twice that amount.

Not only that but with many of these loans the outstanding balance is more now than it was when the loan was initiated. And that’s after making a couple of years of payments.

So what is the result of the sum prime loan debacle?

As sub prime market borrowers face sharply higher payments many are unable to pay. The foreclosure rate is already at record high rates and the number of loan resets already made are still in an early stage. As the real estate market is flooded with distressed properties the entire housing market is at risk of being dragged down.

The implosion of values can have dire consequences indeed, as trillions of dollars of equity simply fades away. One the the nations largest Investment banking firms, Bear Stearns, has already been effected as one of its hedge funds that invested in the sub prime loan market has gone into liquidation.

There is probably not going to be an early recovery. Years of poor lending practices will likely take several painful years of correction to balance out.

However, hard times always present outstanding opportunities to the prepared. We will be examining ways to make money during hard times in the housing market as we move forward.

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