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How Mortgage Markets Got Burned From Poor Speculation And How It Impacts Homebuyers

The past several weeks have been rough on the mortgage market.  By extension, of course, the issues are hitting real estate markets, too.

As a quick recap from the first 13 days of August:

• The nation's 10th largest mortgage lender declared bankruptcy
• High profile funds declared their assets worthless, or halted withdrawals of cash
• Many mortgage products were discontinued by their lenders

Then, for the first time since September 2001, the Federal Reserve made $64 billion in low-interest loans available to banks.

What is going on?

The short answer is that while most of America spent much of the last 18 months spooked by the real estate crunch, mortgage investors ignored it. 

For example, after New Century bankrupted in April, many big investment banks and hedge funds thought that other mortgage investments looked "cheap" and so they added to their bets in the sector.

Home loan defaults proved to be an undoing, though.  In exceeding its expected rate, foreclosure activity swamped the value of the mortgage market investments.  Now, many investors are gun-shy about getting any deeper into investments related to real estate lending.

So, what does this mean to you? 

If you are looking for a home loan, it will be tremendously more difficult than it was in 2006, and it may get even more difficult over the next few months. 

If your plans for 2007 or 2008 include buying property, now would be a terrific time to start a relationship with a mortgage broker to begin your planning.   Even if your credit is perfect, it not a bad idea to just get some sound advice about your financing options, and what may possibly change. 

Lately, the mortgage environment has changed daily.