Subprime Crisis and Real Estate ~ Pinoy Reviews

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Sunday, April 27, 2008

Subprime Crisis and Real Estate

We’ve all heard about the subprime crisis going on in the US but do we really understand it? I have to admit, after reading up on it in various newspapers and websites, I still don’t have a clue to what it’s all about. Anyways, in my reading, here’s what I’ve gathered so far:

  1. The subprime crisis is brought about by subprime mortgages
  2. Subprime mortgages are those issued to borrowers that are high credit risk.
  3. Different lending institutions were able to lend money to these high credit risk borrowers and were able to pass on the risk to other investing companies.
  4. When the borrowers were not able to pay their mortgages, it created a liquidity that affected investing companies because they invested into these subprime mortgages.

In the Philippines, we experienced something similar when back in the 80s, real estate in the Philippines went down. That is why the new Banking Laws in the Philippines limit a bank’s investment in real estate in order to minimize the risk that Philippine banks would invest all their assets in real estate and undermine the banking industry.

While investing in Real Estate may not be a good idea for companies, it is a good idea for homeowners. real estate in virginia or similar states where several Fortune 500 companies are located is a good idea since real estate in these areas usually goes up in value.

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