More recently, news reports have demonstrated the fallout of the subprime mortgage industry, as well as how it affects or is affected by the real estate market. For instance, major lender Countrywide has experienced a rollercoaster of lows and greater lows---starting with declining profits and increased foreclosure holdings, declining investor support which has lead to depositor withdrawals from Countrywide Bank in early August 2007, and finally a near-bailout by Bank of America.

Much of the deterioration experienced by lenders like Countrywide began when the interest rates of mortgages taken buy real estate boom-time buyers began to adjust, or the interest-only payment period in their loans ended, and payments turned to interest and principal. In both instances, mortgage payments rose beyond the affordability of many homeowners, resulting in steep increases in foreclosures. The foreclosures started a domino effect across many facets of the lending and real estate market. Domestic and foreign investors who backed loans in bulk with investment money began selling off their securities out of fear, creating not only greater instability with lenders (who had mounting home stock due to foreclosure), but temporary pandemonium in US and International stock markets.

Is the end result of the continuing bad news coming from the subprime industry? There are other lenders with financial worries with no backup from investor cash worldwide, and a glut of foreclosures and other homes available in the real estate market. Additionally, tightening lending regulations will keep those who cannot actually afford it from buying, and ensure only those able to make down payments become owners.

With that in mind, the housing market is not the same one seen over the last few years. Many hopeful homeowners were stuck on the sidelines due to double-digit home pricing, and an unwillingness to take unaffordable loans or mortgages with unstable rates and terms. Some would-be buyers saw taking a home with virtually no money down that nearly doubled in price within a matter of months using such loans would only lead to turmoil---which many who did buy during the recent real estate boom are experiencing now.

It is important to know about the subprime and traditional lending market, whether you were smart enough not buy during the recent boom or believe you made a mistake by doing so. Some of the lending practices used during the recent boom lead to this debacle, and being aware of them will make you an even smarter buyer as more homes become available and prices fall. Many questionable lending practices will change---in part by regulation, but also through buyers who have knowledge about lending and how to maximize their home buying experience.

References:

Peter Viles. LA Times Blogs: Timeline: The Countrywide Crisis

Federal Trade Commission. FTC Consumer Alert: Avoiding Home Equity Scams

Federal Trade Commission. FTC Education Effort Focuses on Home Equity Loan Fraud

Consumer Federation of America. Women are Prime Targets for Subprime Lending

Federal Trade Commission. FTC Testifies on Enforcement and Education Initiatives to Combat Abusive Lending Practices.

Democracy Now. Subrime Lending Crisis: Millions of Families Face Losing Their Homes to Foreclosure.

Floyd Norris and Eric Dash. In a Credit Crisis, Large Mortgages Grow Costly. New York Times, August 12, 2007.

David Streitfeld. Foreclosures May Spur Price Drops. Los Angeles Times, August 12, 2007.

Associated Press. The Week Ahead: Home Sales Data, Earnings Reports Could set Mood. Los Angeles Times, July 23, 2007.