The Mortgage Crunch Takes a Bite out of Stocks’ Performance

Major financial firms across the US are reporting losses due to bets they made on the mortage industry over the last few years. Their stock-holders are suffering the most.

Several factors play into the losses. First of all, record default and foreclosure rates are killing mortgage companies and the firms that have invested in them.

Secondly, existing home sales continue to struggle and fall – the National Association of Realtors is reporting those sales down by another 8%. That’s a serious drop. Falling home sales can be traced to the tightening of funds by lenders due to the high levels of default and foreclosure. It’s becoming a vicious cycle.

The big question now in the financial world is how to stop the bleeding. Many investors are hoping the fed will drop interest rates again so home sale recover. That’s not silver bullet people are hoping it will be though. Even if interest rates are low, lenders will be gun-shy about extending credit to questionable borrowers. It doesn’t matter how low interest rates are if a person can’t provide proof of income to justify the loan.

Suddenly I’m wishing I owned a portfolio of rental property.