Consumers looking for new loans or looking to refinance old loans will now have even more hurdles to climb. Recent loan news has been downright terrible. Two Bear Stearns Hedge funds almost collapsed under the weight of bad subprime loans. Furthermore, in the last couple of days the government has asked banks to tighten their lending standards on all loans. For consumers this spells trouble.
A Crash Course on the Mortgage Market
The mortgage market is far more complex than many consumers might think. While the process begins with the consumer obtaining a loan from the bank, it does not end there. The bank takes that loan and a bundle of others and sells them at a discount to investment banks (like Bear Stearns). Investment banks then package those loans into bonds, which they sell to investors looking for higher interest fixed returns.
