Is the Sub-Prime Mortgage Crash Affecting Your Stock Portfolio?
We've all read the sad stories about the people who bought homes a few years ago, using sub-prime, and particularly adjustable rate loan programs. (In plain english, that means poor credit and a loan with a fixed rate for two years, that subsequently adjusts every year following). And now they're defaulting on their mortgages, because they can't afford the higher payment post-adjustment.
It's difficult now for lenders to help people out of this unfortunate situation, because investors who purchase mortgage-backed securities have tightened their restrictions to the point that often these people don't qualify for any type of a refinance loan either.
This hit us personally when we'd obtained an approval for a client with New Century Financial. They funded the loan, so our client got his money, but when we shipped them the file, they sent it back saying, "Sorry, we're out of business." Now we have a loan we can't sell -- a 100% cashout refinance loan without verifiable income.
During the couple of months when all of these lenders were either closing their doors or just restricting their guidelines, we had to call several clients to say, "I'm sorry, I could have done that for you last week, but now it just doesn't exist anymore." What no longer exists are "stated-income" loans with zero down payment. Even with a high credit score, people need to come up with 5% down.
There are still no-money-down loans available, if you have good credit and verifiable income, however. That hasn't changed. All of these tightened restrictions are for the alternative loan products (people who are missing two or more of the traditional "income, credit, savings" package).
But why should those who don't need alternative loan products be concerned about the sub-prime crash a go go? According to Morningstar, it might be affecting your stock portfolio:
Of Morningstar's 18 domestic stock fund categories, the financial category hasSphere: Related Content
the second-worst returns for the year to date, ahead of only bear-market funds.
Most REITs and real estate funds are focused on commercial real
estate, which is not directly affected by the residential mortgages at the
center of the subprime meltdown.
4 comments:
Hi I came across your blog from DebtCC Blog Hunt contest.I never took any sub-prime loans but some of my friends are there who have faced some problem in their stock portfolio due to sub prime loan.
I am quite interested in this topic.It's really a very interesting one.Hope you will elaborate more on it in future posts.
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