The Mortgage Crisis Continues

Whether you are buying a house, selling a house, or a home owner, you are probably worried about the current state of the housing market, which is hitting lows that the US hasn't seen in decades. The Boston Globe reported this Wednesday that foreclosures are up 68% from last year, and the problem is predicted to worsen.

According to a study conducted by Moody's Economy.com, housing prices will decline an average of 7.7 percent in the upcoming years - while some housing markets may decline by up to 25%. Current home sales aren't fairing too well either - sales on existing homes sank 8% in September, the steepest drop ever recorded.

Worse are the problems that the subprime lending market has encountered this past year. Subprime lenders lend money to people with bad credit and were responsible for pumping $640 billion into the economy through home purchases and refinances in 2006. Due to the recent delinquencies and housing foreclosures many subprime lenders are taking a big hit. Six major subprime lenders, including Netbank, Ameriquest, and New Century Financial, are currently filing for bankruptcy. Others may soon join them as they report tremendous losses. Among them is Citigroup, one of the nation's largest financial services, which recently reported losses of up to $17.5 Billion dollars due in part to the housing crisis (Wikipedia).

The biggest problem with the subprime lending market is that it can create a chain reaction. As lenders raise their borrowing standards, less people will be qualified to take out mortgages. Fewer qualified buyers can mean the housing market will fall even further. Many economists predict that this housing slump will continue into 2009.

To aid some of those affected by the subprime mortgage crisis, the Bush administration released a foreclosure relief plan this month which could help up to 1.2 million homeowners by freezing their interest rates. When announcing the plan Thursday, administration officials recognized that this plan is not a "silver bullet," but said it is a significant step to addressing the credit crisis.

Time will tell if the administration's plan will help some of the many affected by this crisis, but at this moment, the problem remains and people are trying to find their own ways to cope with it. Many people can no longer tap into the equity on their homes and will have to cut back spending this holiday season. Others are giving up their plans to buy and sell new property.

Roxanne Withrow, a homeowner in New Jersey, was going to move with her family to Sarasota, Florida after the holiday season. But with the recent drop in housing prices, she may have to wait a few more years before the move.

"My house went up in value by $200,000 in the last ten years - but now it's starting to decline in value, and I want to get the most for my money," Withrow said. She added, "buying a house in Florida might not be the best idea with the housing market the way it is down there."

The Bush administration's plan to aid homeowners struck by the subprime crisis, while helpful, is only designed to help a small percentage of those affected. The remaining people hurt by this crisis will likely be struggling for the next few years. Thousands of homes have already been foreclosed, and the situation is expected to get worse.