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Jonathan Tobin: Defending the Right to a Jewish State

Heather Hale: Compliment your kids without giving them big heads

Megan Shauri: 10 ways you are ruining your own happiness

Carolyn Bigda: 8 Best Dividend Stocks for 2015

Kiplinger's Personal Finance editors: 7 Things You Didn't Know About Paying Off Student Loans

Samantha Olson: The Crucial Mistake 55% Of Parents Are Making At Their Baby's Bedtime

Densie Well, Ph.D., R.D. Open your eyes to yellow vegetables

The Kosher Gourmet by Megan Gordon With its colorful cache of purples and oranges and reds, COLLARD GREEN SLAW is a marvelous mood booster --- not to mention just downright delish
April 18, 2014

Rabbi Yonason Goldson: Clarifying one of the greatest philosophical conundrums in theology

Caroline B. Glick: The disappearance of US will

Megan Wallgren: 10 things I've learned from my teenagers

Lizette Borreli: Green Tea Boosts Brain Power, May Help Treat Dementia

John Ericson: Trying hard to be 'positive' but never succeeding? Blame Your Brain

The Kosher Gourmet by Julie Rothman Almondy, flourless torta del re (Italian king's cake), has royal roots, is simple to make, . . . but devour it because it's simply delicious

April 14, 2014

Rabbi Dr Naftali Brawer: Passover frees us from the tyranny of time

Greg Crosby: Passing Over Religion

Eric Schulzke: First degree: How America really recovered from a murder epidemic

Georgia Lee: When love is not enough: Teaching your kids about the realities of adult relationships

Cameron Huddleston: Freebies for Your Lawn and Garden

Gordon Pape: How you can tell if your financial adviser is setting you up for potential ruin

Dana Dovey: Up to 500,000 people die each year from hepatitis C-related liver disease. New Treatment Has Over 90% Success Rate

Justin Caba: Eating Watermelon Can Help Control High Blood Pressure

The Kosher Gourmet by Joshua E. London and Lou Marmon Don't dare pass over these Pesach picks for Manischewitz!

April 11, 2014

Rabbi Hillel Goldberg: Silence is much more than golden

Caroline B. Glick: Forgetting freedom at Passover

Susan Swann: How to value a child for who he is, not just what he does

Cameron Huddleston: 7 Financial Tasks You Should Tackle Right Now

Sandra Block and Lisa Gerstner: How to Profit From Your Passion

Susan Scutti: A Simple Blood Test Might Soon Diagnose Cancer

Chris Weller: Have A Slow Metabolism? Let Science Speed It Up For You

The Kosher Gourmet by Diane Rossen Worthington Whitefish Terrine: A French take on gefilte fish

April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review

How the subprime mortgage crisis works

By Marshall Brain

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http://www.JewishWorldReview.com | (MCT) The name itself is numbing. It is called the "Subprime Mortgage Crisis". It is hard to think of a less sexy name. Yet this crisis is all over the news right now and it is having a big effect - on the stock market, on home prices, on the ability of people to get mortgages, etc. How big of an effect? According to the Wall Street Journal:

"The property value of U.S. homes will fall by $1.2 trillion, and `at least' 1.4 million homeowners will lose their properties to foreclosure in 2008, according to a study released Tuesday by the U.S. Conference of Mayors and the Council for the New American City. The study, prepared by forecasting firm Global Insight Inc., predicts a widespread and deep economic impact from ongoing housing market problems, which many expect to stretch through next year."

That is a big effect. Although it is not quite so portentous as it sounds. This has been building for quite some time. There were 1.2 million foreclosures in 2006 and we survived that without any catastrophic problems. So 1.4 million in 2008 is not going to kill us. The difference is that, right now, the crisis is getting a huge amount of press.

Where did this crisis come from? The name, unsexy as it is, says it all. The word subprime refers to a type of borrower. A person who has been categorized as subprime is someone who has an imperfect credit history. For example, the person may have had a problem with missed payments, or a prior foreclosure or bankruptcy. This leads to a low credit score, generally below 630. In other words, this type of borrower is considered be at a higher risk for defaulting on a loan.

So a subprime mortgage is a mortgage given to a subprime borrower. The general idea in a subprime mortgage is that, because the person is a higher risk, the person will be charged a higher interest rate. There are a number of ways to charge a higher rate. For example, the person might be given an adjustable rate mortgage that has a low rate initially. This is often referred to as a "teaser rate." Then, after two or three years, the rate adjusts much higher.

That doesn't sound so bad. The thing that caused the subprime mortgage crisis is the fact that the people who give out mortgages went nuts. They started giving gigantic mortgages to subprime borrowers who couldn't possibly pay them back. How nuts did they go? A recent Wall Street Journal article describes one case that is not atypical. A single mother making $2,833 a month ($34,000 per year) got a no-money-down mortgage on a $385,000 house in 2005.

Now just think about that. If she had gotten a normal 30-year fixed mortgage at 6 percent on $385,000, her monthly payment would have been $2,308. Obviously a person making $2,833 cannot make payments on a $385,000 mortgage, especially when you add in the additional things like property taxes, homeowner insurance, repairs, etc.

This mortgage was absolutely ridiculous from the start. And since she was subprime, she would not have gotten a 6 percent interest rate. So why did she get the mortgage? Because, with a super-low teaser rate, the payment might have "only" been $1,200 per month for the first three years. And the idea was that she would be able to refinance into another teaser rate loan before the $1,200 per month turned into $3,000 per month.

That is a great idea until either: 1) Housing prices start falling instead of rising, or 2) Interest rates go up, or 3) The excesses in the mortgage industry get to be so great that regulators finally start sniffing around (followed by the press), or, in the worst case, 4) All of the above.

When that happens, you have millions of people who can't refinance their way out of huge mortgage payments, and these people are prone to defaulting on loans anyway, and the whole thing blows up. You get millions of foreclosures. And since housing prices are falling rather than rising, the foreclosed properties bring big losses to the investors holding the mortgages.

That's where we find ourselves today. It would appear that a group of mortgage lenders found a way to bend the rules, and no one was regulating them to prevent it, and they made a huge amount of money in the process by writing all those loans. Unfortunately, the actions of these lenders will lead to millions of foreclosures and will have many other long-term effects on the economy as a whole.

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Previously:


How gift cards work
How Tasers work
How giant TV screens work
How foreclosure works
How Air Force One works
How wildfire fighting works
How vitamins work
How ejection seats work
How reattaching limbs works
How hot air balloons work
How paparazzi work
How counterfeiting works
How CDs work
How the Edsel worked
How Stinger missiles work
How hybrid cars work
How sharks work
How mosquitoes work
How diesel engines work
How water towers work
How the Dawn mission works
How Kassam rockets work
How the North American Eagle works
Why aren't we flying to work?
How tofu and soy milk work
How Colony Collapse Disorder works
How airbags work
How the U.S. income tax works
How gum works
How caffeine works
How Daylight Saving Time works
How a cruise missile works
How snow making works

© 2007, How Stuff Works Inc. Distributed by McClatchy-Tribune Information Services.

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