The credit crunch, what's it all about? To find
out Videojug has turned to www.debts.org
for the latest on the crisis affecting the
economy.
To best understand what has made the economy so
poorly of late, we must diagnose the cause of the 'credit crunch.'
While there are many variables that can cause the global economy to
capitulate the way it has been for the last 18 months, such as
terrorism and oil disputes, arguably the biggest reason for the
credit crunch is the sub-prime crisis.
Singling out the
Subprime
You may be wondering, 'What the hay is a Subprime
and what does it have to do with me?' Let's begin by answering the
first part of that question.
Mortgage providers in the US were raking in the
money selling mortgages to people who posed a moderate to high
credit risk. A subprime mortgage begins at a low monthly rate, also
known as a 'teaser period' but can
inflate to double the amount or more in some cases, overnight, ie
when the teaser period expires. The result was rather predictable.
Soon millions of homeowners who were barely surviving the teaser
payments were unable to pay their mortgage when rates
rocketed.
Did Wall Street see this coming? Well practically
anyone who cared to look would see this juggernaut coming but the
motto appeared to be 'lend now and worry later'. The outcome was
predictable; millions of people were missing mortgage payments and
foreclosing on their homes. And unlike Hollywood, this story had a
sad ending. Homeowners were forced to foreclose on their new
property and move to cheaper accommodation. Not so easy with a
ruined credit rating! As for the banks and other providers, they
were recouping properties and mortgages at literally hundreds if
not thousands per week.
As the housing market ground to a standstill with
people unable to buy or sell properties, banks started pulling
mortgages off the shelves, making it difficult for anyone to get a
home loan at a competitive rate. (You can compare loans and
mortgages at www.debts.org
).
So now to the second part of the question: How does
it affect me? Well, if you live in America, the UK or Europe, you
will see that what started out as a crisis in the US soon spread
across the globe. First time buyers found that 100% then 90%
mortgages were withdrawn from the market meaning they had to find
enormous down payments. With no new buyers coming into the market,
homeowners who were looking to upsize had nobody to sell
to.
If that didn't affect you, then you were fortunate.
However, before you start wiping the sweat from your brow with
relief, have you tried applying for credit
recently?
The credit
markets
The credit markets, which consumers and businesses
rely on to keep money pumping through the economy by lending and
borrowing, started to freeze over. The credit crunch epidemic
started sapping confidence and strength from companies who have
been finding themselves edging ever closer to bankruptcy. Some big
names such as the Lehman Brothers have already fallen and in the
UK, Northern Rock was nationalised and Bradford and Bingley were
sold onto a Spanish bank.
Lenders universally tightened their credit rating
criteria so only consumers with the cleanest credit history are now
eligible to borrow money. Personal loans, credit cards, home loans,
were all moved out of reach for the average Joe.
Having your credit rating in ship shape is vital if you wanted to
grab the best loans on the market. If you need to check your credit
report or learn more about credit scores, visit www.debts.org/credit_reports
Overview
The US government recently signed in a bill that has
granted the financial sector $700 billion to stabilise the economy.
What started in the US will hopefully end in the US as the mega
bucks given to bail out banks and financial firms takes effect in
Europe and elsewhere.
Experts predict, however, that the UK may well be in
a full blown recession by 2009 and the US economy still has an
unemployment problem to solve. Until the global economy is
stabilised the credit crunch is likely to affect you and your
ability to obtain credit or sell your house, for the foreseeable
future.
For impartial mortgage advice and much more
visit www.debts.org/mortgages
Compare the cheapest loan deals at www.debts.org/loans
