The Current Financial Crisis and How Annuities Are Affected
Mortgages provided for non-qualified applicants and runaway property values. The assumption was that real estate would continue to rise and equity would be gained in home ownership. Once the melt down started, many people were left with homes that they could not afford (and never should have qualified for) and simply went into default. Once default came, the holders of the mortgages asked the sellers of the mortgages to provide relief with the promises of insurance against loss. As things worsened, the funds and collateral were not sufficient to survive and the overall mortgage paper had to be written down (lowered in value). Once the devaluation of the paper happened, banks were left short of reserves because of having to provide additional collateral for the reduction in value of the mortgage paper.
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