subject: Speculative Mortgage And Mortgage Lender [print this page] A large contributor in the development of subprime mortgage crisis has been speculative borrowing. Phenomenon of such speculative borrowing is more prominent in the residential real estate market.
Nearly 22% and 14% of homes that were purchased were used for investment and vacation purposes in 2006. It means that nearly 36% to 40% of the homes were not meant for primary residential purposes. Investment buying however registered a declining trend in 2006 in comparison to previous years.
Housing boom and sharp rise in price of houses during 2000-2006 made finding home loans easier. It also resulted in consequential rise in speculative mortgages. Media reports widely published the cases of condominiums purchased while they were not completed from construction. Subsequently they were flipped for a profit. Unique feature of entire process was that the seller hardly lived in the condominium at any point of time during the process of purchase and sale.
Some of the mortgage companies offering home loans identified the risk factors involved in the process as early as 2005. Non adjustment of the tax and mortgage policies to the shift from inflation hedge to the process of speculative investments also contributed to rise of the syndrome. It was sort of contagious optimism on the part of the investors those got involved in speculative mortgages in hope of making good profits. Yet such speculative process contributed substantially in rise in debt levels as well as eventual collapse of the asset values.
Banks and financial institutions created, analyzed, sold as well as traded the mortgaged securities those were real bad investments. On the other hand the Securities and Exchange Commission, Attorney's Office of the States and the Justice Departments are carrying out criminal investigations currently on the mortgage concerned .
Upcoming of such crisis in the years before the crisis were result of the change in the attitude of borrowers as well as lenders. During that period lenders started lending more to the high risk borrowers. In addition; they also offered various risky loan options for the borrowers. But the result was disastrous. Number of defaulters multiplied and foreclosure cases grew in number.
Moreover, the eligibility criteria for loan approval started changing becoming more and more stringent with the growth of defaulted cases and foreclosures.
by: kellyprice1225
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