The Mortgage Meltdown

The Mortgage Meltdown of 2007 refers to the chain-reaction, now unfolding, in the global financial world. This meltdown is a result of years of high risk mortgage lending to consumers with sub standard credit. The result has been a massive tightening of lending standards for consumers and a global credit crisis for banks and their investors.

Millions of these high risk borrowers are either delinquent or in default - the final step before foreclosure. 1 out of every 200 homes will be foreclosed upon. Every three months, 250,000 new families enter into foreclosure. One child in every classroom in America is at risk of losing his/her home because their parents are unable to pay their mortgage.

Most U.S. mortgages are tied to global investment markets on Wall Street, where investment banks bundle them up and convert them into securities. These mortgage backed securities (MBS) are in turn sold to private and government institutions both in the U.S. and abroad. With the rise in mortgage defaults, a wave of financial loss has spread worldwide.

As the value of these assets decline, investors are demanding steep discounts on mortgage investments or are staying away from mortgages altogether. With no one to sell to, lenders can't free up their credit lines and take on new loans. As a result, over 100-mortage companies have shut down - and thousands of homeowners and home buyers have been left with no way to finance their transactions.

Now, this vicious cycle has begun to hurt home values as fewer buyers can qualify and sellers are forced to lower their prices. As we are seeing, this slow-down poses plenty of danger to real estate equity here in the U.S. and global investment fortunes around the world.