Subprime Morgage Crisis

Subprime Mortgage Crisis

With the entire subprime mortgage crisis that has hit our nation lately one has to wonder if the same could be in store for credit card industry. To see if this is a possibility, one has to look at the basic reasons behind the mortgage situation. Are there similarities between this current situation and what is happening with credit cards? If it is a possibility, what will this mean for your average person?
     From my understanding to simply put it, what happened was since interest rates where so very low, people could borrow money to purchase/build a house at very low rates. Now before you can just go and borrow money for a home, you have to have some pre-qualifying criteria, such as a good credit history, income that is capable of paying the loan back etc. If you are a high risk of not being able to pay back the mortgage, due to little income and low equity you maybe considered for a "subprime" mortgage. This does not mean you get the interest rate at below prime, if that was what it meant we would all strive for poor credit. Then there is often an initial introduction interest rate for subprime mortgages but after this introduction the rate climbs above what normal A Mortgages are lent out for. They have to lend them out at a higher rate due to the risk involved. Then many of these people can no longer afford the payments and therefore default on their mortgage thus loosing their house. This then happens to so many people that it creates a glut in the housing market, prices fall, and the mortgage creditors are there scrambling to pick up the pieces.
      Essentially, many of these people should not have been eligible for a loan in the first place but many companies driven by the idea of making a buck and poor lending practices jumped on the subprime bandwagon offering mortgages out to just about anyone.
I think also what caused things to go haywire was since people could afford more expensive homes as a result of low interest rates on a whole and this started to drive the price of homes up. As the prices of homes where rising, so was the ability to make money with realestate. Contractors could build homes and sell them for much more than they used to be able to and people where willing to buy homes since the money could be borrowed for so cheaply. And things such as flipping homes could be done with much less risk of losing money since the prices where rising so steadily. Things rose so far so fast and then the carpet was sort of slowly being pulled out from under it. It was not sudden crash like a stockmarket crash but more of a slower "crashing" so to speak.

     So, now could this happen in the credit card industry. Credit card debt is climbing more and more for the average person each year and being paid off later and later. Often there are introductory credit card interest rates for people with poor credit, once that rate is over, they are stuck paying high rates of interest if they have not paid off their bills in full. Some other factors to point out are that houses are usually by far the most expensive purchase one will make thus driving a lot of money into such a market. Credit card purchases are not near the cost of buying a house. Credit card purchases of general merchandise does not usually cause a steady price incline in the products generally, where as it often can with realestate. Credit card purchases are however unsecured debts thus making it harder to repossess such items. Home mortgages are structured in a way to ensure repossession if one can't pay off their mortgage. My own opinion is that there could be a similar crisis with credit cards but I don't believe on quit the scale of what the submortgage crisis is going through. The result could be the creditor's stock prices plummeting and no longer such good deals with introductory credit card interest rate offers and perhaps a little more challenging to those with bad credit to obtain credit cards. Time is always the best way to find out for sure.