How the Subprime Lending Crash Will Affect You

As you probably know, the subprime lending crash has been all the news for the past two or three weeks. Indeed, from senate probes on subprime mortgage lending practices to news that financial institutions are dramatically downsizing their subprime lending units, you can't seem to escape the news of subprime lending. And here it is on my personal finance blog. However, I am going to address how it affects you directly.

If you own real estate stocks and stocks in subprime lending companies, the implications are obvious. You are losing money. Or you are buying up more shares at the lower prices, hoping that the subprime lending sector will rebound. What you do in this case depends on your risk tolerance.

However, for those of us not invested in subprime lending stocks, the effects may not be as cut and dry. Take looking for a home. Over the last 20 years it has become increasingly possible to buy a house, even with poor credit. Not so anymore. If your credit score is less than stellar, you will find that your home ownership options are becoming limited. Lenders are becoming risk averse, and poor credit home loans are going to be on the decline. This means that you are going to have to boost your credit score if you plan to buy a home in the next year or two (or maybe even further out).

But, as with all crises, the subprime lending crash does have a silver lining. The resourceful can always find a way to turn problems into an advantage. If you have good credit, as LoanShak points out, you can make a real estate property investment in a foreclosure. One of the best ways to do this is to buy a foreclosure and then fix it up and resell it. LoanShak points out that while this might take a little work on your end, it is one way to turn the current real estate environment to your advantage.

For more on subprime lending, visit the Banking Law Professor blog.


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financial goals, subprime lendig, credit score, risk tolerance