Analysis of a mortgage meltdown

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Today’s New York Times has an in-depth article on the meltdown in the sub-prime mortgage market, which is also impacting potential home buyers with solid credit ratings.

To make matters worse, all borrowers are now likely to face higher borrowing costs for years to come, even those with stellar credit histories. Already, mortgages of more than $417,000, known as jumbos, carry interest rates of 7.5 percent to 8 percent, up from 6.5 percent last month.

“It’s going to come down a little, but it won’t go back to 6.5 percent,” Mr. Goldstone said. He also predicts the rate of about 6.25 percent on smaller government-backed mortgages will probably rise to 7 percent. That may not sound like much, but for a homebuyer borrowing $400,000, the higher rate means $200 more in monthly payments.

With fewer loans being given at higher interest rates — even for good credit risks — it seems a further correction in housing prices is inevitable.

Read the New York Times article.

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