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Subprime Mortgage Mess

The path that led us to the current economic situation is difficult even for those in the financial industry to follow, but now that weíre here itís important to understand how this will affect you so you can plan accordingly.

Right now banks are holding onto mountains of bad mortgage paper. Whether the homeowners are struggling to make their payments or the bank has already foreclosed on the property, these underperforming assets have tied up the money in the banks to the point where many canít lend to consumers the way they did as little as a year ago. With less money to work with comes higher restrictions on lending, so only the most creditworthy can get financing. This is true of individuals and business owners alike.

As an individual this will impact your ability to get a car loan, a credit card and even a mortgage. People who used to breeze through credit checks are now having to provide tax records to qualify for loans, and in some cases they are still denied, because banks arenít willing to take even the slightest risk. Further, many think the lowering of the fed funds rate will be passed down to them, but in reality the banks are more likely to hike the rates they charge for loans so they can begin to recoup some of their losses and thus have more money to lend. As a business owner the loans you could previously get to stabilize market swings in most cases arenít available. This may hinder your ability to order equipment, chase new business or even pay your employees.

Given that individuals and businesses alike are taking a hit its virtually impossible for every American not to be affected in some way. Even if you personally have a great job, steady income and exemplary credit, there are people in your community that donít, and their inability to spend or even pay their taxes will ultimately impact prices in your area. You may see the cost of goods rise so store owners can pay their leases, or taxes increase so city services like trash removal can still be offered with the same efficiency they are now given that there are fewer homeowners to contribute to these services. It remains to be seen just how the global situation will add to this.

Essentially, while a few were more responsible for creating the current environment the many have to help with the recovery. Itís not an easy or even fair burden for people to shoulder, but if we donít the downward spiral will likely continue.

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