This is an excerpt from an article I saw about the Wall Street, stocks falling...I know zilch about stocks...but I'm posting this because there is phrase in here about a housing and mortgage crisis and I wanted someone to school me on this...

EXCERPT BELOW- today's news (AOL)

Tuesday's drop followed steep losses on Wall Street in the past few months as investors took in a stream of weak economic data and reports that financial firms had lost billions of dollars due to the housing and mortgage crisis. With the housing and credit markets unlikely to turn around soon, and more disappointing economic news expected, investors were likely to keep shying away from stocks.

Yeah I don't know much about this stuff either. I just saw this morning that Bank of America's profits went down 95% due to mortgages. People are saying that we may even go into a recession. I think what is means is because of the lack of economic growth in our economy and the rate that loans were given to "people who really couldn't afford it" it's negatively effecting the stock market especially for the banks and loan agencies. Lots of people are defaulting on loans and because of it these companies are losing their money. You also have people out here getting ARM or adjustable rate mortgages so they can get lower interest rates, but when they adjust in 6mos-1yr, they can't afford it. So you have most of the banks just writing off millions of dollars in defaults. Because of this they are taking away from their profit, and if you have no profit; stocks go down.

I read about this stuff everyday and I hope I can shed some light. Swayyah is right on point with it.

Over the past maybe ten years, lenders, like banks and mortgage companies, have been lending money to people to buy homes. Ordinarily you have to have a certain income and your credit has to be good enough to be able to get a loan. But in recent years, you could get a house with mediocre credit, low or no down payments, no proof of income - they were handing out mortgages to pretty much anyone who wanted one. These kinds of mortgages are now currently called "subprime" loans.

Thing about these loans is, they give you a low interest rate to start with, and eventually, the rate goes up. They do this because lending money to someone who didn't prove they could pay the loan back is risky, and people who supposedly have bad credit have to pay more to borrow money than other people. This makes people's mortgage payments go up. This makes it harder for them to make ends meet. Then people start not paying their mortgage 'cause they can't afford it. This is bad for a lot of people. It's bad for the homebuyer, 'cause they get put out of the house at foreclosure. It's bad for the bank or mortgage company, 'cause they don't get paid. Either that, or the lender sold their rights to get the mortgage payments to some other company, and that company gets screwed.

Sometimes whole entire neighborhoods have house after house after house that was purchased with a subprime mortgage. Next thing you know, it's foreclosures up and down the block from when people couldn't pay and got put out. That makes the neighborhood property values go down. A lot of people have been borrowing from the value of their house but when that goes down, they can't do that so they have less money to spend.

Add this in the mix: we had a mediocre holiday shopping season. Gas is high. Utilities are high. People can't get loans, and banks are being more stingy in giving them out 'cause they lost a lot of money on that give-money-to-everyone-who-asks-for-it thing. Put all this together, and you wind up with a lot of people who have less money to spend. And when people don't spend money, the stock market goes down. So investors don't want to buy stocks 'cause they don't think they'll make any money that way. Since the demand is lower, the price is lower, and that's why the Dow Jones is dropping every day. It's freaking people out 'cause the value of their retirement savings, their homes, their stock portfolios - it's all dropping and people with anything to lose are feeling poorer. They're thinking this may be the beginning of a recession (which is at least six months of negative economic growth.)

For most people with few assets however, it's the same isht, different day.

thanks alot for the info ladies.
QUESTION?
with all this going on in the present is this a plus or minus for first time home buyers?

...oh and interest rates are dropping.... which is also a PLUS for homebuyers.

glory and swayyah i must thank you both for sharing your knowledge with a brotha.

i know this is horrible...but i am patiently waiting until i can buy a nice house in a good school district that's being foreclosed or in threat of foreclosure. that's that's the only way i'll be able to afford something decent. i saw a nice 3 bdrm townhouse in cherry hill for 204k and was upset i couldn't jump on it then. it's sad when you think 204 for a townhouse is cheap, but it was waaaay below market value and i figured the seller was in a crunch.

when i look for property i do a lot of research: school district, city ordinances, building/zoning laws, etc. the building/zoning laws are extrmemly important because they determine the value of your home.
when i lived in mays landing, they passed a law saying that only single family homes could be built from that point forward unless it was for 'active adults.' i owned a 3 floor end-unit townhouse 3 miles from the mall and the expressway, but still far enough in the woods that it was private. my property value doubled within 4 years - and all i did was put ceramic tile in the kitchen and dining room.

research is key when you buy a house...

A buyer for a house I'm selling had to switch from getting a conventional loan to the FHA loan because of this crazy market. I also used the FHA loan to get my my first property because of the lower downpayment option. The downside is a higher interest rate. The game always depends on how much money you're willing and able to put down. With these lowere interest rates today, the FHA loan is best for first time homebuyers with little savings.

thanks vince. ill do some research on FHA loans.

FHA loans also have stipulations that conventional loans don't have. Sometimes the houses you want don't meet the requirements of the FHA loans so it may limit your options. RESEARCH is good though, cuz like vince said there are some benefits.

my neighbors are buying a house with a FHA loan. no down payment, but that have to purchase a home in a rural area. i'm not sure what the interest rate is, but i know it's high. the good thing about it is they are really strick and will only lend them what they can afford, unlike a lot of predatory lenders out there.

sam, i'm a first time homebuyer myself. i'm working on saving for a down payment. one thing about philly (i'm trying to buy in the city limits) is that this isn't one of those towns where the real estate market went crazy like in ohio or california or florida. a lot of the housing in the city is pretty much being offered at the price that it should be, so we probably won't see prices falling VERY low. however, we probably won't be seeing the prices shooting up any time soon, either, which is good!

i probably won't do FHA financing - i'll probably wind up going through my credit union. it should take less time that way, and i am a very impatient woman.