How Did We Get in this Financial Mortgage Crisis?

How did we get in such a financial mess?  Before our very eyes, the U.S. is on the verge of the biggest financial crisis since the Great Depression.  So much has happened in the last few weeks that it can make your head spin and unfortunately, we are all affected in one way or another, just ask anyone who has recently applied for a Texas home mortgage or Texas reverse mortgage.

The United States experienced what experts call a real estate bubble and as with most economic bubbles, they result from too much of a good thing, in this case credit.  More and more Americans were becoming proud homeowners and Texas mortgage brokers have never been busier. Those of us who already owned homes were thrilled as our home value rose, and then using that equity to purchase new cars, vacations, flat screen TV’s and kitchen remodels.  This same story played out in neighborhoods across the country.

However, a storm was approaching in the financial markets which spelled financial trouble for everyone.  Far too many people were getting approved for Texas home equity loans and Texas home loans which would likely never be repaid.  The major financial institutions were still lending more and more money to questionable borrowers as a means to make quick profits.  These banks were packaging a Texas home mortgage and then sell it to someone else.  The rating agencies blessed the packages which were then sold, across the globe.

The pendulum of easy credit has swung back in the opposite direction and everyone is paying the price. Every player in the market, from stockbrokers to Texas mortgage brokers, had no choice but to become more conservative, in fact down right non-existent in terms of lending. Lenders are only giving money out for Texas home loans to consumers who they consider to be safe.  Everyone else is denied and why home prices continue to decline. Securities began to decline in value, the strength of the banks weaken, so they lend less, while home prices continue down in a self-perpetuating vortex.

Banks and other major financial institutions are now reluctant to lend and the reason why in this current mess. Credit and lending, used in Texas home loans for example, are the main cogs of the financial circulatory wheel works.  What Fed Chairman Bernanke and Treasury Secretary Paulson saw in mid-September was a credit contraction of unprecedented proportions. The recent take over of Fannie and Freddie and the rescue of AIG were done in an attempt to restore a sense of order and keeps that all-important credit flowing. Unfortunately, it wasn’t enough and our markets are now at a tipping point.

While wildly unpopular with most citizens, the $700 billion bailout plan is vital to restoring confidence in the American financial system.  These preemptive actions will hopefully avoid the very real threat of a depression, even though it seems very likely we are entering an economic recession at this point. Things will get better. Recessions don’t last forever but it will take time for the economy and financial markets to heal.