Others thought that they could invest in 2nd properties and in a year or two sell for a profit. These people used sum prime loans in order to invest in property. The housing/condo market has taken a dive their investment is not worth what is owed on the property and their ARM payment (adjustable rate mortage) are going up, way up.

So they have no choice but forclosure

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One feature is that the banks/mortgage companies would put together these loans, without adequately vetting the borrowers, then bundle these loans and sell them to second parties. Hedge funds for instance might buy these loans as well as foreign banks and other foreign buyers. .

In some cases these loans have been foisted onto Hispanics, who do not adequately understand the English on the contracts they’ve signed. I wouldn’t imagine this to be a major part of the total crisis, however.

When the economy slows, the process snowballs as more and more people become unemployed and can’t make their mortgage payments. Last Friday saw an atrocious unemployment number.Housing isn’t a huge part of the economy, but there is a so-called “wealth effect” that a person’s house can have on his spending habits. People will spend less if they feel their house is declining in value. And the consumer IS most definitely a major part of the economy–some 70% of the economy according to a guest last week on CNBC, the financial news channel.

What’s killing the stock market now is the uncertainty of the problem. No one knows the extent of it.

A further problem with the stock market: When the market was freefalling a few weeks back, many questionable securities could not be sold. Therefore good stocks were sold, and thus ALL stocks went down. Thus what began as a limited problem can snowball. And because the American economy is so important in the world, what affects this country affects the world. You will NOT have America in a recession while the rest of the world continues on a boom cycle.