by Jessica Jardine

Created on: April 17, 2010

The default of the sub-prime sector has forced the banks to implement higher interest rates which are mostly affecting the poorest of communities in America. These lower income families are facing a raise of rates as high as 12%. The Federal Government is looking to set a base interest rate at 5.25%. The increasing amount of properties being repossessed is causing officials to fear an infectious downward spiral which will eventually affect the rest of the economy. Here is a list of 5 major offensives that are affecting the economy today negatively due to problems with mortgages arrears.

Bank Bridging Finance

Bank bridging financing; is when the investor buys a property from a developer at a reduced price and immediately gets the property refinanced at the “market value” and the investor then pockets the money, often called back-to-back lending. Developers have been feeling the pinch with not enough qualified applicants to purchase their properties, resulting in developments all across the country being sold off at an alarming low value causing immoral investors to gain an absurd profit.

Fraud

An increasing amount of fraud is being investigated by the Financial Service Authority, who has reported a massive amount of fraud cases every week. As more and more people are not able to maintain their mortgages current or even qualify for a refinance program, the creative attempts to maintain their homes are assisting in creating an even greater problem for the financial institutions.

No Loans

More and more people are opting to not purchase homes. The refinancing and purchase of a home is at an all time low and the financial world is experiencing a great loss. People have to choose between paying one bill or another to survive. Mortgage arrear problems have caused debt problems across the board.

Unemployment

The currently poor financial stability of our economy has caused many businesses, mostly in the financial sector, to have to liquidate and become non-existent causing a high percentage of job losses. Unemployment rates are still at high levels, resulting in a large amount of mortgages being compromised and arrears all over the country. 

Affecting the World

Effects of our mortgage arrears turmoil has also affected other parts of the world. For example in the UK, officials have reported the problem being one of uncertainty due to the losses they have incurred from defaults on US sub-prime mortgages. The threat has caused high concerns of inflation possible by a dramatic rise in energy prices.

In conclusion we must all find a solution to this economic threat facing us all today. A positive thought is that often in times of trouble it allows the opportunity for all nations to work together towards a common goal. In the home front it opens doors for many small local businesses to take advantage of new policies and courtesies not otherwise offered by our government allowing for new innovative and creative growth and employment within our communities.

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