BACKGROUND OF REAL ESTATE MELTDOWN

The subprime mortgage crisis, popularly known as the “mortgage mess” or “mortgage meltdown,” came to the public’s attention when a steep rise in home foreclosures in 2006 spiraled seemingly out of control in 2007, triggering a national financial crisis that went global within the year. Today, consumer spending is down, the housing market has plummeted, foreclosure numbers continue to rise, and the stock market has been shaken.

The subprime crisis and resulting foreclosure fallout has caused dissension among consumers, lenders, and legislators, and spawned furious debate over the causes and possible fixes of the “mess.” Although the current mortgage crisis is far from over, it has created tremendous opportunity for real estate investors. The subprime and now also the prime mortgage markets have experienced unprecedented rates of delinquencies, and restructuring of these loans are urgently required. The Federal Government has made TARP money available to the banks to accomplish this task. TARP funds can be used to offset the lender’s losses incurred if the loans are removed and settled. In addition, financial institutions are insured against defaults because many mortgage-backed securities were insured with Credit Default Swaps.

By completing either a short sale or foreclosure, both considered “defaults”, the insurance pays off and the banks are therefore more willing to accept less than current market value for these properties.