When a credit crunch occurs, it affects the whole economy. No industry can stay unaffected as credit crunch refers to shortage of funds available in the credit market. This makes it hard for borrowers to obtain financing. When we talk about mortgage industry, grave situation of credit crunch facing the US economy has definitely hit the mortgage market hard.



Mortgage crisis as upshot of credit crisis has had a bad impact on not just the small players in the market but the big players too have suffered big losses. Mortgage brokers have been caught in fallout. They have had to pull out many mortgage programs from the shelf; especially programs related too subprime lending. Otherwise they have to eat up some costs to keep some loan programs running. As seen some leading lending companies too have pulled back their subprime mortgages. Thus it is evident that the profit margins have also watered down in the lending market.

Borrowers have been the most unfortunate of all. Getting a mortgage has become a tough and expensive affair. In the last few years, with the housing boom, the lenders were on a lending spree, disbursing loans to borrowers not only with excellent credit and high income but also to those with poor credit, lesser income, and fewer assets enabling many to purchase their dream house. But now with the recession in economy leading to job cuts and stricter lending norms, these borrowers have nowhere to go but face the nightmare of a foreclosure.

Borrowers, who realize early of their inability to make timely payments, might think of selling off their home in short sale. But with the real estate industry on decline too, it is difficult to seek a buyer ready to pay enough to be able to pay off all the mortgages against the property. The options then left are bankruptcy or foreclosure. Filing a bankruptcy can mar the borrower's credit in a big way.

Foreclosure also does not really benefit anybody, neither the lender nor the borrower. It leaves the borrower homeless while the lender's money is still blocked in the unsold property. The National Association of Realtor's report as well as the US Department of Housing Urban development's joint report with US Census bureau has confirmed a major drop in sale of houses. The reason is obvious. People, who could easily qualify for a mortgage loan couple of months back, are facing difficult time convincing the lending companies to grant them loan. Thus for those who are planning to buy a home with small down payment and feel they can manage by stretching a little, it advisable to wait for correction in credit crunch and till then stay as rentals.

Dip in home sales has affected the profits of some of nation's big names among the builders. Builders like Lenner Corporation, KB homes, etc have reported huge quarterly losses and worsening trends in residential markets. But there was some good news for them from the Census Bureau in the last week. Sadly it was not related to mortgage crisis or housing slump. As per the Census Bureau, the non-residential construction spending saw a rise of 2.3 percent in the month of August. This helped the overall construction spending show a positive sign with expenditures up by 0.2 percent inspite of spending on housing sale declining continuously. Lets hope to soon hear something good about the mortgage crunch too.