Monday, November 3, 2008
Whom to Blame for the Credit Crunch?
Credit Crunch has become the hottest topic today of all times. Most of the country is beginning to feel the presence of the housing crunch and credit crunch right now. I don't think that there is a single entity to be blamed for this economy massacre. So who can we blame for the credit crunch? Maybe the brokers, the government, our banks, the borrowers, the market condition which we call these days the sub-prime market or even the wall street and last but not the lease our ridiculous expectations. Let me discuss this in details so that it will be easier for everybody to understand.
Can we blame the Banks?
As we all know the 1st thing that comes to our mind when we are thinking of banks are the home loans situations because they are ultimately the one who has to come up with the money that the borrower will use to purchase a home. I don't know weather all of you know this or not that out of total home loans given half of them are given directly from banks and the other half involves the middleman or the brokers. Many banks have been working more closely with borrowers in recent years, but many loans are still outsourced to the brokers.
Can we blame the Government?
People believe that the government does not do enough when it comes to policing the industry while others say that the government does more than enough and should hold no blame. Different people have different views on this matter. What we do know is the government is partially responsible no matter which side of the debate you take.
Can we blame the Brokers?
Brokers are just dealers in the better suit if we compare the drug market to the real estate market. Everything is almost common as in they find customers, they find loans, and they make a commission off of the sale paid for by the lender. Mortgage brokers are involved in half of the home loans distribution as we discussed above making sure that the borrower has the money to pay the loan back, and they must also make sure that the property holds its value in the event that a foreclosure occurs or a loan is defaulted on.
Can we blame the Wall Street?
I personally feel that, Wall Street firms are responsible for purchasing home loans from banks. Then they bundle these loans into packages for other investments depending on the level of risk involved in the leans.
Can we blame the Borrowers?
These people are the final buyers and they are the people who are actually using the home loans. Responsible borrowers would match future payments to future income, but irresponsible one will never do this. The demand for borrowers has never been as high as in the most recent years, so lenders are coming up with all kinds of new ways to entice borrowers into taking up loans even when they cannot afford them.
Can we blame the Sub-Prime Mortgage Markets?
Sub prime mortgages are helping many of us. Sub-prime mortgages are making it easier for people to get the homes that they want even when they cannot afford them, even if they do not have the financial stability to keep up with the payments. Sub prime mortgage loans definitely should share a large portion of the blame, but who is to blame for them? No one has the answer yet.