Q&A About Subprime Mortgages

You can’t pick up a newspaper or watch the TV news these days without reading/seeing a story about troubles in the land of subprime mortgages, which is, by the way, a very big place.  Big not only because of the significant portion of all real estate mortgages that are considered subprime loans, but because if the level of foreclosures and bankruptcies that some pundits anticipate actually happens, it could have a domino effect that touches, sometimes painfully, nearly everything that people care about.

I’d like to reference two good background articles about subprime mortgages. Chronicle reporter, Kathellen Pender’s March 15 article takes an informative FAQ approach that addresses questions such as these:

-What is a subprime loan?

-How big is the market?

-What went wrong?

Whereas Harry Domash in his Chronicle spot called Online Investing chooses a question and answer format that speaks to questions such as:

-Can I profit from the subprime lending fiasco…?

-Will the REIT I hold be hurt…?

One overlooked issue in the subprime mess that Kenneth Harney writes about in his Nation’s Housing article (April 1 Chronicle) is how the paucity of escrows for insurance, taxes and such will likely mean that these obligations will be unpaid by the financially overstress subprime borrowers who face them.  The result here could be liens by government entities against the properties that could ultimately result in losses for the lender.  This is an under-reported story that you can read in Mr. Harney’s article here.

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