Sunday, April 27, 2008

How lending industry works!! Reasons for 2008 subprime crisis !! Mortgage rates going up

Fed is meeting next week and street is speculating quarter point cut. In spite of cut in interest ruts mortgage rates are going up. (30 year fixed is shooting more than 6%)

When I was researching about investments by banks and some hedge fund came across this excellent cartoon

Understand Subprime Crisis

Few reasons why mortgage is going up:

1) Investors are not that much inclined to Mortgage Backed Securities (CDO's) and are fleeing away from it.

2) Lenders are more cautious to whom they are lending. No more zero down.

3) Lenders are trying to leverage this situation by overcharging new home buyers and trying to offset their losses in subprime.

General consensus is such that, housing market will go down further, so wait for some more time before plunging into it.

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