Lowell Deeds

The latest on real estate recordings and new technology from the Middlesex North Registry of Deeds in Lowell

March 1, 2007

Mortgages and the Stock Market

by @ 11:44 am. Filed under Real Estate

The New York Times reports that Wednesday’s plunge in the stock market was due in part to concerns about the subprime mortgage market. Subprime loans are those made to borrowers who because of poor credit histories and questionable income, would not otherwise qualify for a home loan. In 2006, mortgages of this type accounted for $600 billion or 20% of the total US mortgage market. Banks would not make these loans because of the obvious risk involved, but Wall Street apparently saw it as a lucrative earning opportunity. Major US investment firms such as Lehman Brothers, Morgan Stanley, Goldman Sachs and Merrill Lynch would provide money to small (and questionable) mortgage originators who would make these loans, the same financing firms would buy back the completed loans and then divide them up into bonds which were sold to individual and institutional investors. It should come as no surprise to anyone that many of these borrowers have defaulted - that’s why they couldn’t get normal loans in the first place. The whole thing seems like a pyramid scheme built upon constantly rising home prices. Unfortunately, Wednesday is probably only the opening act in a much longer show that will have a very sad ending for many home owners.

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