Quote:
Originally Posted by Buccaneer
I guess I play it straight on mortgages: fixed-rates, 30yr type of deals. Why are lenders having troubles right now and what is the sub-prime segment? Are there people getting slammed from adjustable rates and if so, why would anyone have ever taken those conditions? If it's not, why all of sudden are there more foreclosures when the job market has been holding steady?
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I'm somewhat educated on the general idea here, but not the specific issues that have caused my 401k to plummet over the last couple of weeks.
The issue here is that during the housing boom of the last 5-10 years everyone was looking to buy more house and then turn it around for profit. So they couldn't make the payments on a regular 30 yr fixed and would get some type of balloon loan. One of the main ones being "interest only" loans where for the first say 3-5 years you ONLY pay interest - nothing on the principal and then it would cause mortgage payments to be say 1/2 or 1/3 of what it would be. But once that 3-5 years passes the payments skyrocket as they have to start paying off the principal.
So, now that the bubble is bursting these people can't turn around and make a quick buck and they can't make the payments on their mortgage - boom, foreclosures.
In the end - it's a ton of people making stupid, stupid decisions. When you're making a huge purchase like a house you need to educate yourself on what you're doing and not set yourself up for failure like these people did. Not to insult anyone in this situation, but people were idiots for doing this if they did not have some sort of backup to be able to make the mortgage payments.
I'm sure there's more details to it than this, but I know this is a large part of it.