Recently the most buzzed about event in the real estate industry, the abrupt death of the sub-prime mortgage industry. Ok, that is somewhat exaggerated. The sub prime market isn't over, just much more strict than it has been in the recent 4 years. Before last week, as long as you were a legal citizen making minimum wage you could get approved for a mortgage loan. Suddenly, with much more strict lending policies, many bad credit borrowers are finding themselves either unable to refinance their properties or unable to buy a property at all.

Is this just the shockwave of the housing downfall? During the housing boom that ended in 2005, funds were poured with abandon into exotic mortgage loans that allowed people to buy houses with a small amount down or without documenting their ability to repay the loan. This was the gasoline that stoked the housing boom fire. Mortgage companies were completely mindful of what they were doing the whole time. They had no justification offering some of their loan products to people of sub prime credit and in the eyes of many people the very process of doing so constituted as predatory lending. I mean use your head, offering an individual who only makes 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 one bit because the investors didn't care and so long as there were investors to buy the loans back there was no need to look back.

And that's when Freddie Mac dropped the axe. At the end of February, government sponsored mortgage and securities investment organization known as Freddie Mac told the business industry that they were tightening their requirements and were no longer purchasing high risk mortgages made to people with poor, or sub-prime, credit records. The shockwave of this news could be witnesses all throughout the globe as stocks began to immediately sink. Without this government sponsored entity to buy back mortgages that lenders were creating, they would quickly run out of funds to make any more loans. And with the rising rate of defaults on active loans, that capital would dry up even quicker and soon leave red ink. In light of this quick dropout, many bad credit lenders have shut down. At last count fourty-four mortgage lenders have closed their doors or significantly scaled back their outfits, including bad credit goliath New Century. Now, lenders, backers and buyers of mortgages are pulling back as well.

The New Century example is of specific interest because of worries that trouble in the bad credit business could creep to prime home loans, causing troubles for many more lenders. The most asked question of the day: What bearing will the bad credit mortgage disaster have on the whole economy? Sub-prime mortgages created in 2006 may possibly end up having more defaults than any previous year, according to studies conducted by asset bank UBS. Nearly 8% of all loans created this year are at least 60 days delinquent, up from 4.5% a year ago. Foreclosure instances have doubled in the past year as well.

The fallout will be most ruthlessly felt by minority and fixed income home buyers and owners who will discover problems in refinancing interest only loans that they can no longer afford. Those hoping to buy homes with a small down payment or none could also be forced to suffer higher interest rates and will likely not be able to simply state their income without providing documentation such as tax papers and check stubs.