Are We Immune? Subprime Mortgage Fallout

For almost a year now, we have been hearing more and more about the subprime mortgage crisis. Subprime mortgages are mortgages that banks sell to borrowers whose problematic credit ratings do not allow them to get mortgages at better rates.

Many of the subprime mortgages were adjustable-rate mortgages, which are lower-cost than fixed-rate, but where the buyer has in effect agreed to take on a risk of paying higher interest rates in return for lower payments. Many of these loans were given high credit ratings, regardless of the risk involved.

Nationwide, as rising interest rates increased the monthly payments on these mortgages and property values suffered declines, several major subprime mortgage lenders were forced to shut down or file for bankruptcy. Many observers have blamed the crisis on banks who sold large numbers of subprime mortgages in "bundles" to investors.

Real estate in the New York City area has fared better than it has nationwide—new buildings are still being constructed, prices for co-ops and condos are still high. Attorney Steven Ganfer, whose Manhattan-based law firm Ganfer & Shore LLP representsmore than 100 buildings as general counsel, says, "If you're a 150-unit building, it doesn't make a lot of difference if you lose an apartment or two."

Still, according to a recent article in the New York Sun (http: //www.nysun.com/article/63950), the crisis has had ripples throughout the New York financial industry—Morgan Stanley announced cuts of 600 mortgage jobs; Bear Stearns has announced cuts of 310 mortgage jobs.

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