Lowell Deeds

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

January 4, 2008

The Ripple Effect of the Mortgage Crisis

by @ 5:29 am. Filed under Real Estate

Whenever I get in a discussion about the ongoing mortgage crisis, someone inevitably says “I have no sympathy for these homeowners – they knew what they were getting into when they borrowed the money” or “These lenders are getting what they deserved – they knew the risks they were taking when they made these loans.” While these sentiments are both true (while a bit hard hearted as far as the homeowners are concerned), they also ignore the fact that the harm caused by the mortgage crisis is not limited to the lenders and borrowers directly involved in bad loans. A good example of the reach of this crisis is contained in a story in today’s Globe about investment losses sustained by the city of Springfield. Still under the supervision of a financial control board imposed by the state because of the city’s financial crisis of a few years ago, Springfield was painstakingly setting aside money for a stabilization fund, an amount that had grown to nearly $14 million. That fund is now worth only $1.2 million because it was invested in mortgage backed securities issued by Merrill Lynch. When a mortgage company loans someone $300,000, but when the borrower defaults a year later and the house is sold at auction for $150,000, that means another $150,000 is lost, never to be repaid to the investors who put up the money in the first place. Many such investors were municipalities, pension funds, insurance companies and other large institutions that believed their money was in secure funds and at minimal risk. As this mortgage crisis continues to unfold, losses like that just sustained by Springfield will become the big story.

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