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Country Still Reeling from Subprime Loan Crisis

[Dec 9, 2007.]


The nation appears to be continuing to feel the effects from the collapse of the subprime loan industry.

Subprime loans are those home loans that were extended to borrowers with shaky credit histories. While such loans helped to increase the rate of home ownership, they have also resulted in a cascade of loan defaults. The crisis has been so severe that it has led to a massive housing slump - a slump which is likely to continue well into next year. The housing situation has been so difficult that economists fear that it could lead to an all-out recession - although, so far at least, such a crisis has been averted.

Now comes word that the subprime loan debacle will cause property values in this country to drop by a staggering $223 billion. Communities hardest-hit by the crisis are minority neighborhoods, which already face monumental economic challenges.

According to the Center for Responsible Lending, one third of all households will see their property values plummet by an average of $5,000. This is because adjustable-rate mortgages - mortgages which were extended to home buyers with troubled credit histories - will be re-established at elevated interest rates. As a result, foreclosures are expected to skyrocket in the coming months.

Julie Ann Amos
December 9th 2007

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The largest drop in property values will occur in communities with a number of minority residents. That's because minorities account for a larger share of subprime mortgages than the population at large. When foreclosures occur, property values naturally drop, since foreclosed homes tend to be targets for vandalism and arson.

Congress and the White House are expected to act to attempt to forestall another foreclosure crisis. However, some observers worry if the efforts represent too little too late. At this point, economists do not expect the housing market to recover until the middle of 2008. As a result, the housing situation could become a prime issue in next year's Presidential race.


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