Jean H. Telfort's Print Version of Final Projet on Impact of Subprime Mortgage Crisis in Nassau County

The Impact of the Subprime Mortgage Crisis in Nassau County, NY

Saturday April 12, 2008

By Jean H. Telfort

The subprime mortgage crisis can be traced back to the real-estate boom of the late nineties. A decade long housing boom fueled by low interest rates and excess liquidity finally caught up to homeowners who were pushed into loans outside of their means. Mortgage loans that conventional lenders such as Chase Manhattan Bank N.A., and Citibank N.A. would have otherwise declined.

Aggressive mortgage brokers enticed by the lure of big commissions, talked buyers with poor credits into accepting home loans with little or no down payment, mostly without proper documentation and credit checks hence setting the stage for the current mortgage meltdown. http://money.cnn.com/2008/01/29/news/companies/boyd_countrywide.fortune/index.htm?postversion=2008012913

Usually, adjustable rate mortgages (ARMs), interest only (IOs), are known as subprime mortgages. They typically cost two or three points above conventional loans, and carry interest rates with low teaser rates for the first couple of years, followed by a reset to much higher rates. The reset frequently results in raising the borrower’s monthly payment by as much as 100 to 150 percent and thereby making it impossible to handle monthly payments.

Suffolk and Nassau Counties, according to a latest report released by the Empire Justice Center, a non-profit law firm that advocates for low-income families, account for a third of the state’s 2006 subprime loans in foreclosure. Subprime mortgage lending jumped to almost 20% of all loans (by number) from 9% in 2003.

Population growth, overcrowding, and the aforementioned real estate boom pushed many families to Nassau County, due to its proximity to New York City, to grab hold of the “American Dream”. The high demands increased home values and prices at the median level, which explained the high level of disparity in median home prices between Nassau County and Suffolk County http://ny.therealdeal.com/articles/suburban-slowdown.

New homeowners saw a rising value of their homes during the initial year of their mortgages. With the equity rise many homeowners no longer think of their home as just a place to live. Instead, it's a cash machine that can be used to satisfy other debts in the form of consolidation for high rate credit cards, student loans, medical bills, home improvements, and frequently took out home equity loans for extra cash. http://money.cnn.com/2006/11/03/real_estate/home_equity/index.htm?postversion=2006110617. http://money.cnn.com/2006/11/01/real_estate/cash_out_refis_peak/index.htm?postversion=2006110111.

The decline in home values, a weak economy and the reset of those subprime mortgages result in foreclosures. Many borrowers want to sell their homes to pay off their mortgages, but they are unable to find offers that would cover their loan pay-off amounts. Low to middle income population are affected the most as thousands of families are being forced to walk away from homes being repossessed by banks.

The fallout from the subprime mortgages has affected the housing market, financial markets and the entire US economy. Experts are predicting that things will get worse before they get better. The International Monetary Fund or IMF said that the US subprime mortgage crisis could hit $945 billion dollars worldwide.