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How the subprime fallout affects you

Think that the crisis hitting the subprime mortgage market doesn't affect you? Think again. Gerri Willis explains.

By Gerri Willis, CNN

NEW YORK (CNNMoney.com) -- The Senate Banking Committee held hearings Thursday on the crisis in the subprime mortgage lending industry. But we're going to tell you why you should care about the subprime mortgage meltdown and how it's going to affect you.

1: As a homeowner

Even if you're sitting nice and cozy in your 30-year fixed mortgage rate home, this subprime lending mess could really put a dent in your home's value.

Mortgage Rates
30 yr fixed 3.80%
15 yr fixed 3.20%
5/1 ARM 3.84%
30 yr refi 3.82%
15 yr refi 3.20%

Find personalized rates:
 

Rates provided by Bankrate.com.

A recent study shows that about 1 in 5 subprime mortgages will go into foreclosure. And whether that foreclosed property is across the street, or in the same neighborhood, that is not going to reflect very well on your property value.

The Center for Responsible Lending estimates that one foreclosure in the neighborhood lowers the value of nearby single-family homes by about 1 percent. So, if there are 10 foreclosures in your area, you're talking about 10 percent dip in your home's value.

2: In the market

If you're in the market for a home, you're at an advantage. Sellers are becoming very competitive with each other since there are more houses on the market. And prices have come down in some areas too. That means you may be able to score your dream home at quite a bargain.

If you do have solid credit, the 30-year fixed interest rate is very attractive at just above 6 percent. If you don't have good credit however, you may find it more difficult to qualify for a loan.

3: Selling your home

It used to be that securing credit for just about anyone was a no-brainer, but those rules are changing. Lenders tightening their standards, so there may be fewer borrowers out there who qualify to get a mortgage. And that means that fewer people will have the means to buy a home.

That means if you want to sell your home, you need to price it right. You may also have to market your home more aggressively. Make low-cost improvements that can really help to sell your home like sprucing up the backyard or adding some fresh paint to the exterior.

4: In the market for a mortgage

With all the turmoil in the subprime market, it's more important now than ever that you find a mortgage lender that you trust and feel comfortable with. If you have good credit, you'll find that rates are in your favor. That's because there's a real demand now for homeowners that can make their monthly payments.

Make sure you get at least three mortgage rate quotes from banks and credit unions. You may also want to ask friends and family to recommend a lender. Don't fall for promises that seem too good to be true. The day of "low-low" rates and no money down are long gone.

What to do if your mortgage lender goes out of business

Subprime risk: Most vulnerable markets

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.