Sub+Prime+Morgage+Crash

* A "2/28 mortgage" (common type of sub prime loan) works by qualifying the borrower at a fixed-rate for two years. * Beginning with the third year, the rate changes and fluctuates over the remaining 28 years. * Typically, rates can move 2 percentage points beginning in the third year, and adjust every six months. * Common cap rates are 6 points over the initial rate, which means a loan taken out at 5% can reach 11%. * Many 2/28 loans contain a prepayment penalty, adding insult to injury for those who—- want to refinance. People are not able to afford the adjusted interest rates. When the refinance, the house is beginning to lose value. Now the homeowner owes to the bank more than what the market value of the house is. One man in 2007 owed 120% more than what his house was worth: Now banks are starting to provide less sub prime loans, which means that homeowners now have to raise their credit scores in order to buy a home. Reuters has quoted officials at HVB Bank in New York remarking that they "believe that what is going on in the sub prime lending market is just hurting the dollar too much... I think overall the fate of the dollar depends on developments in the sub prime sector and housing market." 16% of the estimated U.S. $1.3 trillion in sub prime mortgages were in default as of October 2007, or approximately $200 billion. Atotal of 72,571 Notices of Default (NoDs) were filed during the July-to-September (2007) period, up 34.5 percent from 53,943 during the previous quarter, and up 166.6 percent from 27,218 in third-quarter 2006, according to DataQuick Information Systems ofLaJolla. $567 billion in sub prime mortgages will reset to higher rates over the next 12 months (placing additional pressure on homeowners) and recent increases in the payment default rate cited by the Federal Reserve, direct loss exposure would likely exceed the $200 billion figure.
 * Sub Prime Mortgage Crash **
 * What are Sub prime Mortgages? ** They are for people who have low FICO scores (credit scores). These loans carry higher interest rates and are typically adjustable-rate mortgages (meaning The interest rate can increase or decrease depending on the index and margin agreed upon.)
 * Effects of Sub prime Mortgages: **