Many people are aware the the market for subprime mortgages has essentially collapsed due to an increasing number of defaults by those who have adjustable rate (ARM) mortgages with poor credit, but what does all of this mean for the average person? Unfortunately, the consequences of this collapse may be felt by individuals in more than one way. First of all, several companies that deal in subprime mortgages are publicly traded and experienced sharp declines. This, combined with other concerns, caused a strong sell off in the stock market a few days ago that may have alarmed some of those holding mutual funds or other retirement funds. Secondly, the collapse is expected to expand into the larger home market, which may cause housing values to fall further this year. However, many economists believe that the US will be able to avoid a recession and even a significant rise in unemployment.

The reason so many people are concerned is because when housing values decline, people are unable to borrow as much against the home. This leads to decreased consumer spending which eventually leads to a slower economy. The subprime market collapsed because when these housing values decreased and people were unable to loan as much, they defaulted on other payments and were ultimately unable to pay their bills. Consequently, they defaulted on their mortgages. Many people also expect the government to step in and institute new credit rules that are more strict than the current set of rules that contributed to the collapse. While the effects of all of this are not yet realized, it is definitely an important situation for all homeowners to track - especially those with poor credit and subprime ARM mortgages.