The Credit Crisis That Affect World Mortgage Market

Here is an interesting and educating video about the mortgage market especially in the US. This short video clip shows you what exactly happened that causes the value of property plunge. Investors and bankers drop mortgage like a hot brick, or even worst, like bombs.




The main problem starts from subprime mortgage, where money are borrowed to property buyers who is not qualified for other loans(e.g. due to poor credit history) at a higher interest rates. In addition, lenders have also offered risky loan options. In 2005, the average down payment for first-time home buyers was 2%, with 43% of those buyers making no down payment whatsoever. By comparison, China has down payment requirements that exceed 20%, with higher amounts for non-primary residences.

It seems like a win-win situation, until housing prices were going through the roof, people weren't making any more money. Borrowers are unable to pay their mortgages, no matter how lax lending standards, no matter how mortgage products were created for people to buy houses they couldn't possibly afford. People do not have protection of losing a job, nor medical emergency, they were underwater before they even started.

Recently Bank Negara Malaysia(BNM) has taken one step further, by announcing new measures in promoting a stable and sustainable property market and debt management of households. Maximum loan-to-value (LTV) ration were fixed at 70%, which will be applicable to the third house financing facility taken out by a borrower. The Malaysian government intent to curb excessive investment and speculation in the urban areas.

On top of that, BNM also introduced the Financial Capability Programme, which will be offered by "Agensi Kaunseling dan Pengurusan Kredit(AKPK, Credit Management and Counseling Agency)" starting from January 2011. The programme is aimed at educating individuals in making responsible financial decisions, by understanding and gain practical skills in money and debt management. With all the initiatives given, I believe fellow Malaysians will benefit in the long run. And hope that we will learn financing cautiously, as every single decision we make will affect not only our life, but the entire national economy.

Are you buying a house? Getting a mortgage? What initiatives have you taken to protect yourself from the crisis? Welcome to discuss here.