Subprime Mortgages Back on the Rise or Still Shrinking?

Article Posted by Expert Author: Sam Stieler  on 04/08/2013

Mortgages given out without backing from the government, also known as the primary cause of the 2008 financial crisis, continued to shrink according to new data from the last financial quarter, reports Bloomberg. For the first time in nearly a decade the market for these mortgages dropped below $1 trillion dollars.

 

What’s Causing this Contraction?

According to Bloomberg the primary reason why these securities are falling is due to the massive number of homeowner defaults that occurred over the last 4 years.

 

Interestingly enough even as the market for these loans shrinks investors continue to pour money into them. The subprime mortgage market has delivered huge 30% returns over the last quarter and an increase in the number of individuals re-entering the housing market seems to bode well for investors looking to turn a profit with these bonds, sparking a few concerns that the same “herd mentality” among investors leading to the 2008 financial crisis may be rebounding as well.

 

While many of the subprime mortgage schemes from yesteryear are now illegal or defunct, there will always be lending institutions that try to game the system by offering deals that may not be in the best interest of the consumer.  Make sure you refer to your home mortgage calculator to understand all of the implications of the deal you are being offered, both in the short term and long term.

 


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