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how do subprime loans effect our country?*

how did subprime loans affect the bail out and lead to it and the downing econamy

Answers:

1) It means more subprime borrowers will never pay causing losses to everyone else. Company sales to subprime borrowers stop so some of their employees will be laid off. Prices will be raised to cover the losses. The retirees who invest in the companies and/or loans will lose a part of their investments.

2) Read and watch this link on Subprime Meltdown

3) Subprime loans were made to people that didn't have sufficient credit or income to qualify for a standard loan. (Prime). They had to pay higher interest rates but often didn't even need a downpayment but took out a second loan on the house to finance the downpayment and any other costs associated with purchasing a house. Essentially these people would end up with a main mortgage and a secondary mortgage so that their payments were often higher. Usually they were allowed to pay a smaller amount for a couple of years in hopes that the house would increase in value and have sufficient equity built up that after a couple of years they could refinance the mortgage again or sell for a profit. This went on for years until houses started becoming so unaffordable that the mortgages created to finance these inflated prices would finally put some of the subprime mortgage holders over the limit and they started to default on their mortgage payments and ended up losing their house. Once a wave of these forclosures hit the market they were sold for a lot less then all the other houses around them and attracted buyers away from the overpriced houses sold by owners. Owners no longer could get enough money for their houses to pay off their mortgages and make a profit. Finally it got so bad that their houses were worth less than what they paid for and they couldn't find a buyer nor could they refinance their houses because now they had no equity in the house. A bank will only give you a new loan to pay off the old mortgage if your house is worth more than what you owe on the old mortgage. Now more and more people started to default on their mortgage payments especially if they came to their anniversary date and had to start making higher payments every month. That created a huge domino effect and when the mortgages aren't paid for then the investor that bought those mortgages as part of their stock portfolio ends up losing money because the stock they hold is worth a lot less. With all those houses now sitting empty and no one able to afford to get a mortgage because the banks don't want to take a risk anymore it leads to people losing their jobs. From the realtor that doesn't have enough clients to sell houses to to the person working in the loan department of a bank to the construction guy that used to build the houses.... All these jobs were lost and when people lose their job they can't afford to buy a house. And the people that lost their houses now have really bad credit and also can't afford to buy a house. The banks can't get the money back that they loaned out and become the owner of the foreclosed houses instead. Bank aren't in the Real Estate Business so they will sell them as fast and as cheap as possible. But they money they loaned out for those houses is partially lost. When you give somebody $200 000 to buy a house and they don't pay it back and you can't sell the house for any more than $100000 then you have lost $100 000 and nobody is going to make that money come back. Now multiply this by millions of mortgages and you can see that our banks and investment houses that "own" these mortgages are going broke.

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