There is a lot going on in the mortgage market in terms of things going south.

The sector of the mortgage industry known as the subprime market has been making headlines lately as some of its biggest lenders go out of business and thousands of homeowners head into foreclosure.

But what is really going on?

Well, there is no one answer to this question, since it is probably safe to say that there has been a variety of different factors that have contributed to the problems.

Low credit scores, lax lending standards and a soft market have contributed to the screaming headlines we read every morning concerning the subprime market.

A recent article by Elizabeth Weintraub of about.com, “Why are subprime mortgage lenders crashing?” takes a look at the current crisis we are seeing within the subprime mortgage industry.

First of all, subprime loans are loans with slightly higher interest rates than other “traditional” loans and are issued to homeowners with blemished credit that probably wouldn’t be able to qualify for a traditional loan.

“Although not all subprime mortgage loans involve borrowers who are poor credit risks, I'd say most subprime loans are those that fall outside the scope of traditional lending practices. That is to say that borrowers with high FICOs who do not wish to disclose income are subprime candidates as are those whose credit reports carry delinquencies.”

“There is no one-size-fits all when it comes to figuring out the subprime market, but I'd say it's safe to figure that borrowers most destined to end up in foreclosure are those who fall into all three of the following categories: 1. Low FICO scores 2. No down payment 3. 2/28 adjustable-rate mortgage.”

Obviously, not everyone out there that holds a subprime mortgage is going into foreclosure or missing their mortgage payments. The reason why this situation has garnered such extensive media attention is that yes, there is an alarming amount of homeowners going into foreclosure (when compared with year’s past) and many big name lenders are also struggling due to subprime failures.

“The year of 2007 is witnessing the crash and burn of subprime mortgage lenders. Even strong institutional lenders such as Wells Fargo has eliminated more than 500 jobs in its subprime lending department. Moreover, many well known subprime mortgage lenders whose portfolios consisted of 100% subprime loans have closed up shop.”

As a result of the troubles we are seeing, things are starting to change dramatically within the industry. In the future, many people with bad credit will have a much more difficult time taking out a loan or getting a refinance because of all the problems now.

“As a result, underwriting guidelines have tightened; fewer borrowers will qualify, fewer will refinance and more short sales and foreclosures will take place, affecting the value of surrounding properties. Consumers have less money to spend, and all of this further weakens a falling real estate market.”

Although this seems very “doom and gloom,” hopefully the market will slowly pick up, and the damage will not be as severe as some people are making it out to be.