It’s clear to say that the meltdown that the sub-prime mortgage market caused to the U.S. economy and other national economies was one of the biggest financial stories of the year. At the beginning of the year not many people outside of the mortgage industry knew what a sub-prime mortgage was, let alone the toll these mortgages were going to take on the mortgage lenders that offered these products.
At the end of 2006 the signs of things to come in 2007 were already on the wall. Homebuilders were building home faster then they could sell home, the inventory of existing homes for sale were rising at an alarming rate and reports of mortgage delinquencies were becoming increasingly alarming.
In February European banking giant HSBC Holdings became the first investor in securities backed by sub-prime mortgages to announce billions in losses in its sub-prime investments. Shortly thereafter, New Century Financial announced the rippling affect the sub-prime mortgage market was making to their financial foundation.
In June, the mortgage giant Bear Stearns announced that two of its hedge funds that were invested in the sub-prime mortgage market had lost most if not all of their value.
As the months went on, more and more sub-prime mortgage lenders would follow with their doom and gloom stories of borrowers defaulting on their sub-prime mortgages. This would lead to banks tightening loan standards around the world.
With worries of a U.S. recession the U.S. Federal Reserve slashed the discount rate, which is the rate that it loans money to banks by half of a percentage point. A month later on September 18th the Fed began to slash the Federal Funds rate and the discount rate by half of a percentage point, which has continued every time the Fed has their meeting.
According to the “Implode-O-Meter”, since late 2006, two hundred and ten major U.S. lending operations have either closed their doors completely, filed for bankruptcy or have drastically cut back their staff. Some of the big names include New Century Financial Corp., Maribella Mortgage, Ameriquest, Loan City, HSBC Mortgage Services, Aegis, First Magnus, Nova Star, Decision One, and the list goes on.
Many economist suggest that 2008 doesn’t look any better for the U.S. housing market then 2007. With 2008 a year for the housing market to correct itself don’t be surprise by more mortgage delinquencies and foreclosures rising. Home prices will more than likely hold steady or decline until the market has corrected itself.
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