Client: Burke, Harvey & Frankowski Law Firm
Copyright 2008 Burke, Harvey & Frankowski
Sub-prime real estate and its effects on bonds and mutual funds
Birmingham, Alabama
Subprime real estate is based on lending at a rate that is higher than the current prime rate because the credit score of the buyer is lower than ideal for lending. The term also refers to property banknotes that cannot be sold on the primary market. If you have been affected by the problems in the subprime real estate market and want to know your rights, schedule a confidential and free consultation with the law offices of Burke, Harvey and Frankowski of Birmingham, Alabama.
Subprime Borrowing and Lending
Subprime is very controversial and it is alleged that the lenders deliberately seek out borrowers who will be unable to meet the terms of their loans. The results are:
� Defaulting on the loan agreement
� Foreclosure on properties
� Seizure of collateral
� Further damage to credit history of borrowers who default
� High financial risks for investors
� Unexpected decreases in stock market values of mortgage investments
Less than optimal financial situations are often involved in subprime borrowing and lending, which include high interest rates and poor credit histories for those seeking to borrow money for these investments.
While borrowers are doing well at repaying their debts, bonds and mutual funds do well with higher yields. But, once appreciation of home values begins to falter, borrowers don't make enough back on their investments to pay back their loans. The overwhelming number of borrowers who have ended up defaulting on their loans in the past year have forced many subprime lenders into bankruptcy.
Effects on Bonds
Most subprime mortgages are part of bonds that are sold to investors through securities in which investors can choose the level of risk they are willing to take. Mortgage-backed securities are considered very safe, while asset-backed securities are considered risky and are often based on subprime mortgages.
Many of the securities considered low-risk involved more subprime exposure than originally thought. The result, once borrowers began defaulting on their loans, is that bonds which were once rated as high-yield investments have now been down graded.
The results of this shift in investment values is that bond investors are beginning to avoid credit risks that offer higher yields and stick to bonds which have a proven safe track record.
Effects on Mutual funds
Mutual funds have been hurt by downgrades related to subprime mortgages and the threat of future downgrades. Values have continued to decrease steadily and are now more than fifty percent lower and barely holding on.
High risks and misinformation, such as took place with the Morgan Keegan fraud allegations have sent high-risk investors packing at the mention of subprime real estate investments.
Bonds and funds that take too many risks hurt everyone involved in the stock market game. Investors who generally invest in risky stocks because they enjoy the high-yielding results that build their bank accounts, are more likely to shift to low-risk ventures, such as treasuries, for a while until they recoup some of the money they've lost and the aches and pains of the subprime real estate market failure have begun to rectify themselves.
If your investments have been damaged by the recent effects of subprime real estate on the stock market, contact Birmingham, Alabama lawyers Burke, Harvey and Frankowski today to find out how they can help you.