A local Cleveland newspaper covering the foreclosure crisis in the area called the Plain-Dealer released an alarming new report on the sub prime mortgage market in the city. The report indicated that of all the properties bought with sub prime mortgages in the year 2005 in the Cleveland area, about half those homes have now gone into foreclosure, a staggering fact that points to just how badly the sub prime mortgage market has affected the real estate market as a whole.

As a result, Cleveland now has one of the highest foreclosure rates in the nation, and one of the most ravaged markets. The entire city, from the poorest urban areas to the most affluent suburbs, has been hit hard by the foreclosure crisis, and it’s clear that in most cases sub prime mortgages and their effect on foreclosures and home values are largely to blame.

The Plain Dealer also reported that it’s now impossible to tell how many of these loans were the result of unfair or predatory lending, as many of the lenders responsible for those loans have had their loans bought out by bigger mortgage companies.

But while delinquencies fell, they are still nearly 3.5% higher now than they were in February of 2007. The other cause behind this trend could be the fact that Countrywide has recently tightened their lending policies, and become more hesitant in providing loans than they have been in the past. Facing pressure from the Federal Reserve and many critics who chastised the lending industry for creating the subprime market disaster by being way too liberal with the handing out of loans, Countrywide felt the need to have more restrictive standards when it came to who they would award loans to. While subprime market loans attempt to provide loans to people who otherwise would not be able to attain them due to low income or bad credit, these are the same people who would be most likely to default on the high monthly mortgage payments associated with subprime market ARMs. This has resulted in the huge waves of foreclosures we have been seeing.

It’s also resulted in big losses for Countrywide. More defaults have lead to less revenue, and oftentimes Countrywide even loses money when subprime market homes go to foreclosure sale.

These new lending standards and this first statistical sign of their effects could become larger as time moves forward, and could have a growing effect on the subprime market as a whole.

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Before a home can be sold, an appraisal must be made on it so that the real estate agent in charge of the sale can correctly determine its value. However, when appraisers take inventory of your home to determine its value, they also look at what surrounding homes in the area have sold for, and foreclosures due to the failing subprime market hurt this figure. Since their homes have been foreclosed on and sold off for cheap at auction, the value of nearby properties also takes a hit.

The subprime market has been the source of the majority of the foreclosures currently plaguing the real estate market in many states. The subprime market is also referred to as the market for low-cost, zero down payment adjustable rate mortgages, which offer buyers loans for very little in the way of instatement, but are nearly impossible to keep up with on a monthly payment basis, as interest rates are constantly fluctuating. These sorts of ARMs have led to the incredible volume of bank foreclosures for sale that are pulling down home values allover the country.

By analyzing how the subprime market effects the real estate market as a whole, foreclosure investors can draw valuable information. While there are so many homes out there in foreclosure right now that it almost seems buying anywhere is a good idea, this is not the case. Buying homes on the subprime market is just like buying other real estate; you have to evaluate the area the home is in as well as the home itself. The surrounding area will have a huge effect on its future value. If you buy bank foreclosures for sale in a foreclosure plagued area, the value of your property will take much longer to appreciate.

Try to pick homes in areas where foreclosure isn’t as rampant. In the end, this will improve your chances of profiting off an investment in the subprime market.

Kroszner’s remarks have echoed the sentiments of many policymakers, public officials and citizens. Banks and lenders have been blamed for a large part of the foreclosure boom and the downturn in the housing market due to what many have considered to be questionable lending practices.

One of the leading causes of foreclosures have been adjustable rate mortgages, the coreof the subprime market, which became extremely popular in the past decade. Offering low initial costs and down payments in exchange for fluctuating, sky high interest rates after the first year, these loans were aggressively marketed to low income buyers who had little money to afford a down payment on a home. Ironically, these types of borrowers are also the most likely to be unable to afford the rising payments required by the later stages of the loan. With federal interest rates extremely low at the time, banks handed ARMs out quite easily, and Kroszner blamed them for not seeing the folly in this earlier.

Like other officials as of late, Kroszner stressed the need for tighter lending practices, so that disasters like the subprime market can be avoided in the future.