Recently the most blogged about issue in the real estate industry, the sudden death of the sub-prime mortgage industry. Ok, that is a tad exaggerated. The sub prime market isn't dead, just much more strict than it has been in the past 5 years. Prior to today, as long as you were a legal citizen making minimum wage you could get approved for a mortgage loan. All the sudden, with much more strict lending policies, many sub prime borrowers are discovering they are either unable to refinance their homes or totally unable to purchase a home at all.

Perhaps this is just the shockwave of the housing bubble bust? During the housing boom that ended in 2005, money was dumped without concern into unconventional mortgage loans that let people to buy homes with nothing down or without providing verification their yearly income. This was the fan that flamed the housing boom fire. Lenders were fully mindful of what they were doing all along. They had no business offering some of their loan products to people of B paper credit and in the thoughts of many people the very notion of doing so could be seen as predatory lending. I mean let's be real, giving an individual who barely makes above minimum wage an interest only 3 year loan? What do you think is going to happen in 3 years? But the banks didn't care at all because the investors didn't care and as long as there were people to buy the loans back there was no need to stop.

And that's when Freddie Mac dropped the bomb. On February 27th, government sponsored loan and securities investment organization known as Freddie Mac informed the real estate world that they were tightening their requirements and were no longer purchasing high risk loans made to borrowers with bad, or sub-prime, credit history. The shockwave of this news could be witnesses all the way around the globe as stocks began to almost immediately sell off. Without this government sponsored entity to buy back loans that lenders were creating, they would assuredly run out of monies to create more loans. And with the increasing number of defaults on previously made loans, that capital would dry up even quicker and soon leave red ink. Due to this neck snaping news, many sub prime lenders have stopped operations. At last count fourty-four home loan lenders have stopped business or seriously scaled back their outfits, including sub prime leviathan New Century. Now, lenders, financiers and buyers of mortgages are pulling back as well.

The New Century case is of particular worry because of worries that problems in the sub prime game could spread to prime mortgages, causing issues for many more lenders. The only question of the moment: What effect will the sub prime home loan crisis have on the overall economy? Sub-prime mortgages made in 2006 could end up resulting in more defaults than any previous year, according to explorations conducted by investment bank UBS. Almost 8% of all loans made this year are at least 60 days unpaid, up from 4.5% less than year ago. Foreclosure instances have doubled in the past year as well.

The pullback will be most rigorously burdened by minority and poor home buyers and owners who will experience trouble in refinancing exotic loans that they can no longer afford. Those looking to buy homes with a small down payment or none will also be forced to accept higher interest rates and may not be able to simply declare their salaries without providing documentation like tax papers and paycheck stubs.