Bankruptcies and forced takeovers are difficult enough economic events, but when they involve one of the biggest brokerage houses and one of the biggest insurers in the country, it is bound to have implications.

Many of us don\’t have funds in the stock market, at least not any that we can touch for the next 20 years, so we are more worriedabout how these things will affect the housing and mortgage markets.

These events can be mostly blamed on the housing markets from the beginning, so they are sure to have a further implications on it. Just as homeowners who took advantage of low or no down payment loans and low teaser interest rates are under the pressure of decreased liquidity and rising interest rates, most of the firms that are having problems now got pretty fat and rich during the housing bubble trading mortgage backed securities and collateralized debt obligations. This easy credit policy was a two edged sword, since both borrowers and lenders were damaged. The result of this ballooning market is that nearly $7trillion in debt was created between 2000 and 2006, report Daniel Alpert of Westwood Capital. In other words, a doubling of consumer debt such as mortgages and consumer loans since the end of 1999. This could not continue without consequences.

This type of economic shift is bound to have an effect on every market. This credit crunch will eventually add up to $1 trillion in losses, once the figures are tallied for 2008.

So of course the home market is going to be a victim. Banks can simply no longer afford to continue to lend at that pace. In addition, lenders will see an added burden of falling income as consumers, faced with greater mortgage costs and possible foreclosures, cut back on overall purchases, reducing fees from banks\’ credit card, auto and personal loan operations.

All loans, and not only home lonas will be difficult to obtain. In a, this will be good news, since lenders will be forced to be more discriminating in their lending practices.

For some prospective buyers, this may be extremely good news. With too little mortgage money and too much available real estate, home prices will continue to plummet. In addition, tighter credit requirements will discourage a lot of speculative buying in the real estate market, which was partially responsible for inflateprices. This may be a real advantage to first time home buyers who had been shut out of the housing market when housing prices were skyrocketing. If the exaggerated housing market of the early 2000s kept buyers out of the market, those who used the time to build up cash for a deposit and make any necessary repairs to their credit may be in the catbird seat, securing the few loans available to good credit risks at historically lower prices.

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