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Thread ID: 95800	2008-12-17 09:05:00	Economics question	Ninjabear (2948)	PC World Chat

Post ID	Timestamp	Content	User
730137	2008-12-17 09:05:00	Im trying to understand the economic crisis the states is having at the moment The subprime mortgage crisis en.wikipedia.org Now by understanding is that the bank are lending money to people who have bad credit histories and that when the USA house price fell if affected the market. How it affects the market is the question I would like to know? "mortgage delinquencies soared, and securities backed with subprime mortgages, widely held by financial firms, lost most of their value" So the house price falling means the house doesn't have that value anymore. Not sure what that means? Can anyone give me some economic lessons here?	Ninjabear (2948)
730138	2008-12-17 09:11:00	I think it means when house prices fall, that is lower than what the person originally mortgaged their house for. Ie... pple took mortgages for 800k and now house prices is worth 500k on the market ... their house is worth less than what its market value is now. They are financing a house more than what its now worth. If they jump .. the bank has a risk ... if they sell it ... its not enof to get back its original amount. The amount that was paid to the seller.	Nomad (952)
730139	2008-12-17 11:04:00	US Banks have lent money, frequently because actively encouraged by Government policies, to people who were bad credit risks for the level of mortgage granted. This was coupled with borrowers having very low equity in the houses they had borrowed to buy. A few defaults on mortgages are part of everyday banking business, but when the volume of defaults became a deluge, the increasing repossessions greated a glut of properties on the market from which banks were trying to recover their money, which depressed market values to the level that vastly increasing numbers of borrowers struggling to repay mortgages found that now they had negative equity in their homes, and so the problem snowballed. Why did it affect so many countries, 2 reasons, The USA is not unique in lending to borrowers with low eqity in their homes and with the nature of international banking and bank to bank lending banks from everywhere were getting a piece of the action.	KenESmith (6287)
730140	2008-12-17 11:38:00	What does low eqity mean?	Ninjabear (2948)
730141	2008-12-17 12:10:00	What does low eqity mean? House value = $100 000 Morgage you owe the bank $90 000 This would mean you own 10% which is low equity If you only had a $50 000 morgage on the house you would own 50% this is getting better.	Rob99 (151)
730142	2008-12-17 13:10:00	Equity can also refer to the difference between the actual value of the property and the mortgage amount.	beeswax34 (63)
730143	2008-12-17 13:59:00	I think it means when house prices fall, that is lower than what the person originally mortgaged their house for. Ie... pple took mortgages for 800k and now house prices is worth 500k on the market ... their house is worth less than what its market value is now. They are financing a house more than what its now worth. If they jump .. the bank has a risk ... if they sell it ... its not enof to get back its original amount. The amount that was paid to the seller. If that is true then of course one would probably keep paying for the mortgage as selling it at a lower price means they will owe the bank more but since they are keeping the property and paying the bank how does that affect the bank and the economy right now is something which I do not really understand Its not like everyone in the states are stupid enough to sell their houses and risk having a problem paying the banks? if you sell the house at $90,000 and the original price was something more then that when you first bought it at. You would still be able to pay 3/4 of the mortgage you borrowed from the bank right ?unless the entire population in the states is stupid and owes 1/4 of the costs left in the mortgage back to the bank? again if someone is poor why would they sell the house that manges to pay 3/4 of their mortgage back to the bank and end up having not enough money to buy a house that is unless the house is like (example) $300,000NZ and now worth $200,000NZ and borrowed $150,000NZ from the bank so what this means is that after selling the house at $200,000 they still have $50,000NZ left to spare Am i missing something here?	Ninjabear (2948)
730144	2008-12-17 14:28:00	Am i missing something here? Yes. Buy house for $100 000 You have 20% deposit or $20 000 You get morgage for $80 000 Later you find your house is only worth $70 000 Issues arise and you cannot make your morgage payments or you want to move. Your house sells for $70 000 You still owe the bank $10 000 and are homeless. The figures and math you used are OK BUT you will find the poor people you mentioned did not start with 50% equity, it is likely the bank/broker had them morgaged up to 95%, only leaving them 5% equity to weather any storms.	Rob99 (151)
730145	2008-12-17 20:23:00	If that is true then of course one would probably keep paying for the mortgage as selling it at a lower price means they will owe the bank more but since they are keeping the property and paying the bank how does that affect the bank and the economy right now is something which I do not really understand Its not like everyone in the states are stupid enough to sell their houses and risk having a problem paying the banks? if you sell the house at $90,000 and the original price was something more then that when you first bought it at. You would still be able to pay 3/4 of the mortgage you borrowed from the bank right ?unless the entire population in the states is stupid and owes 1/4 of the costs left in the mortgage back to the bank? again if someone is poor why would they sell the house that manges to pay 3/4 of their mortgage back to the bank and end up having not enough money to buy a house that is unless the house is like (example) $300,000NZ and now worth $200,000NZ and borrowed $150,000NZ from the bank so what this means is that after selling the house at $200,000 they still have $50,000NZ left to spare Am i missing something here? Can pple afford the mortgage? Can they afford to pay the interest and a bit off the principle amount while not having their jobs? If not the amount owe will just go up than go down ..... Because of that banks may intervene the customer. If someone is poor and cannot finance the mortgage, they may get a call from the bank. If they really cannot they may be asked to sell the house return what amount to the bank and they can slowly pay that off in the future. They could even bankrupt you. Equity is the share you have in it. If you bought Telecom equities you have a very small share in it. If you got a mortgage of 95% bank loan you made a 5% desposit and not paid any to beginn with you have a 5% equity.	Nomad (952)
730146	2008-12-17 20:25:00	but since they are keeping the property and paying the bank how does that affect the bank and the economy right now Banks get money from the interest you pay . They then pay people with savings/investments interest on their deposited money . They lent to people who couldn't afford the repayments of their mortgages . Ooops, suddenly they aren't getting that interest (never mind the original amount loaned) back . See? The other thing they all do/did was re-invest the money they get to ensure they get a better return on it - except when one lot goes down it sort of starts a domino effect as they all get in big poo . It affects the rest of the world because the world trades in US dollars, and the US being the biggest consumer they also stop buying stuff, well as much stuff cause they are all in debt . Isn't Global Free Trade fun?	pctek (84)
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