The Subprime Meltdown

It's amazing to me how fast time can fly when you are busy. It's been almost a year since the subprime meltdown occurred in February of last year. At that point in time HSBC holdings announced that they had seen a pretty large increase in the provision for loan losses as far as mortgage service operations. Due to the fact that people making late payments and losing their home was increasing all over the United States their charge for bad debts in 2006 was $10.5 billion.

The 'meltdown' wasn't something that happened overnight. It's been heading in that direction for a few years now but the announcement by HSBC was sort of a wakeup call to the entire industry. I've posted about the subprime going south several times over the last year and it seems like it's just going to continue getting worse. There is some pretty good information about the subprime meltdown at the link for you to check out as well.

So what happened? Part of it was the fact that many lenders loosened up their requirements and banks were making their lending decisions based on builder's requirements rather than good lending requirements. A couple of my customers work in the building industry and their has been more than one occasion where the lender was told to go ahead and give a loan based on the fact that they had to move houses, even though the borrower was on shaky ground or it was beyond their means. When I bought my house back in 2000 my lender even approved me for a loan around twice what I though I could afford. I went ahead and stuck with a house that would fit my budget, but a lot of people just take the word of the lender. They are the bank after all, shouldn't they know what they are talking about?