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Stock Market Crashes

Stock Market Crashes - Worried about Some Bad Mortgages

Problems in sub-prime loans and predatory lending practices by some mortgage companies are a great concern.  Sub-prime loans happening are not taken seriously until it started to balloon into  front page news. The opinion of the President of the United States, China's financial network and the Chairman of the Federal Reserve covered it to be supposed to be a small percentage of no credit borrowers reneging on their mortgage. Now everyone so worried about some lousy mortgages.

Simple answer is that the old fashion mortgage with your friendly Mr. Cribbs at the bank downtown is on the endangered species list.  The mortgage market today spans the globe. Within days, weeks and months of a mortgage closing it is sold all over the world in bundles of commercial paper or notes.

Complex network of holders of the note are bought and sold by financial brokers, and a others who make these commercial papers part of their portfolio. Problem occurs when trying to evaluate who bought the risky, defaulting loans.  Most or some of the loans are in the process of foreclosure or at risk for foreclosure and still others are foreclosed. How to access the risk to the real problem. Banks, lending institutions and mortgage companies do not like speculation on risk.

To prevent market crashes, the risks have to be mitigated.Tightening of the credit market is the most significant effect. Some banks and mortgage companies have simply stopped making loans. Others, have made refinancing and new loans with increased restrictions.  The credit market is squeezed and

that effects big market players like banks and financial institutions like Bear Sterns. It also effects consumers who are seeking refinancing and new mortgages.

Within the period of several weeks in late August, 2007 the Federal Reserve dumped billions of dollars into the prime lending market making it easier for banks and lending institutions to make loans and to back their existing position.  In addition, the Federal Reserve dropped the interest rate for prime loans to major financial institutions.  The next meeting of the Federal Reserve could see even further drops in prime rate interest rates.

With equal vigor to jump on the band wagon, the President of the United States provided the possibility of legislative help for those unsuspecting mortgage holders who were snickered into making bad loans with adjustable rate loans that were predatory in nature.  The problem is how can United States legislate bad loans and notes that may no longer be in the United States.
At the present time, there are some bad mortgages out there held by people with limited income and little credit. Speculators and house flippers that got caught in the head lights of a slowing real estate market.  The common thread is that no one seems to know how many bad mortgages are on the loose. The market hates uncertainty, so that is the reason for all the worry. Hidden risks in market and eventually lead to market crashes.

In a nutshell that is what is going on with all the "sky is falling" on Wall Street. Uncertainty moves the market and what is causing on all flutter in the financial stocks.
  

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