In September of 2009, 14.4% of all outstanding U.S. mortgages were delinquent or in foreclosure. Today, the picture is considerably different and considerably brighter. Figures released in May indicate that only   6.08% of mortgages were delinquent and 3.05% of mortgages in foreclosure, down from 4.12% in May 2012. This gives a total of 9.13% delinquent or in foreclosure, or a total of ​​4,469,000, down again from 5,605,000 the previous year, and the national delinquency rate continued to fall in May, marking the largest year-to-date drop since 2002.  In large part, this is due to the continuing decline in new problem loans — as fewer problem loans are coming into the system, the existing inventories are working their way through the pipeline. New problem loan rates are now at just 0.73 percent, which is right about on par with the annual averages during 2005 and 2006, and extremely close to the 0.55 percent average for the 2000-2004 period preceding. So, on most counts, the housing market is in much better shape than it was four years ago. Prices have stabilized, as the huge decline in home prices, a virtual freefall, that started in the middle of the last decade has now arrested. Homeownership affordability has improved, because even though prices are nearly back to their January 2009 level, mortgage rates have fallen.  Vacancies and inventory are also getting back to normal; back then, there were too many vacant homes and way too much inventory – thanks to the surplus of new homes that were built but not sold during the bubble and the lack of buyers during the recession. Since 2009, this glut of available, vacant homes has been absorbed, as fewer newly constructed homes have come onto the market and fewer foreclosed homes are waiting to be sold. Lastly, delinquencies have slowed, even though foreclosures remain high. As the job market picks up, fewer people are falling behind on their mortgages.  Having said all that, big challenges and questions remain, but the situation is markedly improved from 2009.

Familiar elements of the housing crisis will now be briefly explained:

The Troubled Asset Recovery Program (TARP):  A government program created for the establishment and management of a Treasury fund, in an attempt to curb the ongoing financial crisis of 2007-2008. The TARP gives the U.S. Treasury purchasing power of $700 billion to buy up mortgage backed securities from institutions across the country, in an attempt to create liquidity and un-seize the money markets.

Adjustable-rate mortgage: A type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month. The interest rate paid by the borrower will be based on a benchmark plus an additional spread, called an ARM margin.

Subprime Mortgage: A type of mortgage that is normally made out to borrowers with lower credit ratings. As a result of the borrower’s lowered credit rating, a conventional mortgage is not offered because the lender views the borrower as having a larger-than-average risk of defaulting on the loan. Lending institutions often charge interest on subprime mortgages at a rate that is higher than a conventional mortgage in order to compensate themselves for carrying more risk.

Investment Banks: A specific division of banking related to the creation of capital for other companies. Investment banks underwrite new debt and equity securities for all types of corporations. Investment banks also provide guidance to issuers regarding the issue and placement of stock.

Collateralized Debt Obligations: Investment-grade securities backed by a pool of bonds, loans and other assets. A financial institution, such as a bank, will purchase these CDOs and divide them into tranches, or pieces of the CDO that are grouped according to risk and are available for purchase. Tranches are then sold to investors based on their desired amount of risk, with a higher risk tranche paying out a higher premium.

Credit Default Swaps: A swap designed to transfer the credit exposure of fixed income products between parties. A credit default swap is also referred to as a credit derivative contract, where the purchaser of the swap makes payments up until the maturity date of a contract. Payments are made to the seller of the swap. In return, the seller agrees to pay off a third party debt if this party defaults on the loan. A CDS is considered insurance against non-payment, as a buyer of a CDS might be speculating on the possibility that the third party will indeed default.