U.S Property Bubble Burst - Mortgage Lenders Take Strain

For the sake of those who don’t understand the American property market "bubble burst", I thought of summarizing it as I understand it;

A few years ago the interest rate in America was 1% per annum, therefore, money was cheap and people could easily pay two bonds. But, instead of buying two properties, they took out second bonds equal to more than the 150% of the value of the property, making the bonds much higher than the values of the properties.

The institutions that granted these 150% bonds (known as subprime mortgage lenders) were exceptionally devious, they knew that this bubble would burst(It's happened before), but they saw a money-making opportunity and took the gap.

These devious American mortgage lending institutions carried out huge marketing campaigns and granted as many 150% bonds as they could, they then immediately sold their debtors books to other institutions who were extremely greedy. Some of the greedier mortgage institutions sold the debtors books over again and even syndicated them. The inevitable then happened;

The US Federal Reserve started pushing up interest rates.

Today the interest rate is more than 5% and that means that people are now paying more than 5 times as much on their mortgage bond repayments. The people that did not initially fix their interest rates cannot afford this and have stopped paying(U.S. in serious debt). Selling their property is not a solution, as they cannot get a high enough price to settle the bond. The company that now owns the debtors book is going bankrupt and the investors who bought share in these companies are losing billions.

The investors in the rest of the world HAVE panicked and sold all the shares they have causing some of the worlds biggest loans companies to go bang.

Dear South African’s and Mr President …. our property market is very healthy and we are not in the same bracket as America. Our banks unwillingly give us 100% loans and our interest rates would have to increase five fold to 67.5% so the chances of that happening are probably zero… don’t be put off…keep buying property in South Africa and make sure you can afford it and make sure you do your home loan through Wizard MIDRAND.

U.S. Subprime Mortgage - Boom or Bust for S.A. Home Loans Markets

I'm assuming that most of the people that read this BLOG are either Property Guru's or Financial Barons so if I talk about the U.S. Subprime Mortgage problems that have been going on for the last month or two you're most likely up to date.

If not take a quick read through: Economist.com

The question that's been on everyones minds is; Will the U.S. Subprime mortgage lending crisis effect South Africa's mortgage market? Personally, I don't think so and so far it hasn't. If anything we've been one of the few fortunate countries that haven't been affected. We're fortunate enough in South Africa, that our securitization mortgage market is alot smaller than our bank lending market. Their are very few companies in South Africa that use securitization as a means of supplying funding i.e. SA Home Loans, Eagle Bond Originators, Rudco Finance and now Integer Bond Originators but there's still alot of scepticism amongst South Africans and the majority still prefer using the major banks.

If anyone has experienced the dip in either the U.S. market or if anybody thinks this is still yet to affect us please comment below.

WizardMan Out!