Bad Credit Mortgage Crisis: How Will It Affect You?

By now, you’ve been made aware of the subprime/bad credit Florida mortgage problem plaguing lenders and borrowers around the state.

So, how will this lending debacle come home to roost in your neighborhood? In the form of reduced demand, sluggish appreciation or declining prices, one economist says.

Dr. Christian Weller, senior economist at the Center for American Progress, a Washington-based think tank, suggested that the rise in foreclosures of subprime loans will have widespread impact on consumers and the broader economy.

During a radio interview with Chuck Jaffe, MarketWatch senior columnist, Weller said that subprime lending woes have much bigger implications than simply hurting the mortgage business; with the subprime business drying up, there will be fewer first-time home buyers, which slows all other housing activity.

Subprime Mortgage Woes Spread; Forecasts for Home Prices Cut
Weller compared the situation to the game “Jenga,” where blocks are stacked up in a tower, and said it’s as if the bottom blocks had been removed. The result could be the long-forecast “pop of the real estate bubble.”

“For 2007, it’s a safe bet to assume the value of your home won’t increase,” Weller said. “And people should be worried that if they have to sell, they won’t be able to.”

One positive to come from the situation is that it could create “buying opportunities,” where consumers with strong credit can buy houses at a cheaper price than in the recent past and at Florida mortgage rates that are competitive.

Subprime Florida home loans typically are made at about 3 percentage points above average market rates; Weller noted that when the industry’s problems became apparent, interest rates actually fell as it prompted speculation that the Federal Reserve would cut rates more quickly.

SOURCE: MarketWatch