Sub Prime Mortgage Crisis

Although subprime mortgages have been available since early 1982, they did not gain popularity until the mid-1990s, making them a relatively new phenomenon in the mortgage industry. Simply put, subprime mortgages cost more than conventional (prime) mortgages, but they allow borrowers with “less than perfect credit” or small down payments access to homeownership. Because of their higher chance of defaulting, these borrowers would otherwise have been denied credit.
Many homebuyers have benefited from subprime mortgages. But those with adjustable-rate mortgages (ARMs, a common subprime loan), which offered a lower initial interest rate in 2003 through 2005, are now seeing their first rate adjustment. Consequently, homeowners with an ARM at a low initial start rate will now see their payments increase significantly. Because mortgage underwriters allowed high debt-to-income ratios or loose income documentation, even the small increase thus far has pushed the subprime loan delinquency rate to unprecedented levels resulting higher delinquency rates and, in many cases, foreclosure. Although the financial mechanics of crisis making is much more complicated than the above, this weakening of the foundation of the mortgage market has shaken the entire structure to the point that many of the largest financial institutions in the world are in a substantially weakened economic position.
Still, subprime loans are only a small fraction of the overall housing market and the demand for housing over the longer term will ultimately depend on the fundamentals, such as gains in jobs and incomes, and low mortgage rates. In addition, the issues with subprime lending has negatively affected the economy and revealed possible weaknesses in financial markets. The overall economy outside of the housing sector remains on shaky ground as well, and further action to stimulate and/or stabilize the economy is indicated.
The federal government has instituted measures to assist homeowners with their sub prime mortgages and the Federal Reserve is poised to lower interest rates again, which has already resulted in interest rates below 6% for a thirty year fixed rate mortgage.The northeast Oklahoma housing economy and market has been stable and although a slowing has been observed in recent months, it is attributable to seasonal adjustments as much as anything. The “housing bubble” that has affected so much of the nation has had an insignificant impact on the northeast Oklahoma economy. Appreciation in our home values typically are in the 3-5 per cent/per year range and this reflects the conservative growth of our housing market. Oklahoma remains one of the best places in the nation to buy and own a home.