Could you explain “Mortgage Crisis” but with easy words?
by Mortgage Rates on Monday, October 18th, 2010 | 4 Comments
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too many people bought house they could not pay for, but banks gave them money to buy house anyway. Now when people do not pay the bank backs…the banks have run out of money.
A crisis is a situation that is extreme, in a negative sense. A crisis is an unstable situation of extreme danger or difficulty.
A mortgage is when you borrow money from a lender to buy a house, and then gradually pay off the amount you have borrowed over a period of time, such as 25 years.
The Mortgage Crisis we are experiencing now, in almost all parts of the world, is that a lot of lenders have lent money to borrowers who are unable to pay the money back. This has given a number of reactions. One is that banks are now not willing to lend money to anyone they think cannot pay it back, so they are tightening their lending policies. It also means that houses are selling slower. There are a lot of houses on the market, because a lot of people cannot pay their loans. This means house prices go down, which is not good for anyone.
I hope this helps.
I sell you a house that you can not afford because I make it very easy for you to “buy.” No money down and a low starting interest rate.
I know that you can’t afford it, so I sell your promise to pay (increasing interest payments) to someone else.
While this is going on, people who bought earlier than you get foreclosed and thrown out. The bank owns the house,and soon it will own lots of other houses under the same circumstances.
Lots of houses on the market, so the price goes down for all houses. The house is worth less than what you owe on it. Big problem for you, but a bigger problem for the people who own your debt. How do they get back the $300K they lent you from a house that’s now worth only $225K? Not from you, that’s for sure. If you could pay the difference you could have paid the mortgage.So it goes on the company’s books as a bad debt. Lost money. The value of the company goes down
like a flat tire.
The blame is shared between people whose eyes were bigger than their belly and got in over their heads in buying houses they could not afford, the crooked mortgage brokers who sold them a bait and switch mortgage scheme,and the “money men” who bought the second-hand mortgages without going back to square one. Greed and stupidity all around.
it doesn’t get any easier than this
http://current.com/items/89124784_mortgage_crisis_blues