Mortgage Crisis Spreads Past Subprime Loans

[DeepModem Mom]

Source: New York Times

By VIKAS BAJAJ and LOUISE STORY
Published: February 12, 2008

The credit crisis is no longer just a subprime mortgage problem.

As home prices fall and banks tighten lending standards, people with good, or prime, credit histories are falling behind on their payments for home loans, auto loans and credit cards at a quickening pace, according to industry data and economists. The rise in prime delinquencies, while less severe than the one in the subprime market, nonetheless poses a threat to the battered housing market and weakening economy, which some specialists say is in a recession or headed for one.

Until recently, people with good credit, who tend to pay their bills on time and manage their finances well, were viewed as a bulwark against the economic strains posed by rising defaults among borrowers with blemished, or subprime, credit.

“This collapse in housing value is sucking in all borrowers,” said Mark Zandi, chief economist at Moody’s Economy.com.

Like subprime mortgages, many prime loans made in recent years allowed borrowers to pay less initially and face higher adjustable payments a few years later. As long as home prices were rising, these borrowers could refinance their loans or sell their properties to pay off their mortgages. But now, with prices falling and lenders clamping down, homeowners with solid credit are starting to come under the same financial stress as those with subprime credit....

Read more: http://www.nytimes.com/2008/02/12/business/12credit.html?hp=&pagewanted=all

[MercutioATC]

1. Just wait...it's gonna get much worse.

The defaults on subprime loans are hitting the owners of those loans at the moment. However, all of these loans were packaged by investment houses and then insured by insurers who are just starting to feel the hit. Meanwhile, incidents of arson and theft (autos) has increased. Insurance companies are going to take a hit, too.

[inanna]

2. Recommended.

This is spiralling....

[salin]

3. One would have thought that the disclosures of the risk banks took on

in the fancy and hollow equity "complex vehicles" set up by Enron would have served as a shot across the bough. Instead apparently greed kept running rampant with a cheneyesque response - ala as reported by ONiel that when Bushjr was a little uneasy with initially pushing the second round of huge tax cuts whispering to Cheney - wasn't the first enough - Cheney responded that "Reagan prove that deficits don't matter..."

It is hard to imagine how many businesses will fail as a result of this unbridled corporate greed.

[Phoebe Loosinhouse]

4. I have no sympathy at all for the person described in this story

who refinanced their original $275,000 mortgage that they got in 1995 EVERY YEAR until they now have a$740,000 mortgage they can't afford even though they make over six figures. They "ate" over $400,000 dollars of equity, some of which they lost in "bad investments". Well, boo hoo. I don't think their bank or the government or anyone else should bail them out.

The situation of the lady who sees negative equity through no fault of her own, I am a little more sympathetic too, although she too purchased her home with the understanding she would refinance or sell when her mortgage reset, so she too was taking a GAMBLE that prices would rise forever.

People bought properties they clearly COULD NOT AFFORD!! If these folks had not exercised poor judgment and been enabled by the lenders to make their poor judgments, the demand for real estate would have never become super-heated to the tulip mania level it did. Mortgages that involve negative amortization should be illegal in my opinion. So should any loan that involves more than current existing equity- it's not "secured" by anything but hot air.



edit - thanks for my heart!:blush:

[sendero]

9. In this particular case...

.. I have to agree with you.

In fact most of this debacle has been caused by sheeple gambling on housing prices.

They lost, the banks lost and now the country loses.

[formercia]

12. All pyramid schemes depend on the greed of the investor

Everyone who buys in figures that they will have a chair when the music stops.

Nothing like greed mixed with a rigged game and the mark doubling their bet to chase their losses.

[freedomnorth]

5. Can they keep economy floating until elections? nt.

[SoCalDem]

8. He's trying..

[sendero]

10. They are pulling out all the stops...

... but I don't think they can. There are so many companies teetering on the precipice right now, and some are going to fall.

The stock market is as jittery as I've ever seen it, with wild intraday swings the norm. Eventually, and sooner rather than later, something big is going to happen and there is going to be a dramatic sell off.

I'm betting within a few months at most.

[CANDO]

11. I have all my 401k in the money market for the foreseeable future.

I lost some earlier this year, but bailed to shield myself from further losses. They say don't try to time the market, but I will not hang around for another battering like post 9/11.

[Steerpike]

6. It makes me wonder.

Is this the beginning of the concentration of property into the hands of the upper classes?

[tanyev]

17. Oh, I think we're quite a ways past the beginning.

[Deny and Shred]

18. Bingo. A market crash would allow the uber-wealthy to buy up

entire businesses, even industries at fire sale prices. In the long-term, a crash would be great for them. It would, sadly, complete the societal reorganization of which these guys conceived.
They'll have to bake lots of cakes for the rest of us to eat.

[Steerpike]

19. Well I always knew I was screwed.

I guess I'll just have to work twice as hard just to break even. :nopity:

[laylah]

7. I have some sympathy

for those that kept refinancing, (although not yearly!), as many did so, thinking it was in their best interest (no pun intended)to do so for resale purposes.

The mortgage companies are still doing their best to suck people in. I am in the midst of refinancing in order to bring my payment down. My mortgage company did everything to try to get me to agree to an ARM, which I will have no part of. Then they tried to convince me to refi and take some equity out, saying I have about $45k in equity. I had to laugh. There is no way on God/dess's green earth this place is worth what their appreciation tools say. The racket will continue as long as people, and the powers that be, allow it to.

Hopefully, this mess has made folks a bit smarter and realize they either have to read the very fine print, or get an attorney to do it for them.

[rox63]

13. This is also hitting the little people

Not just people who were gaming the system. About 3 years ago, I bought the condo where I currently live for a price that was below its assessed value. It's nothing fancy, but perfectly comfortable for me and my 2 cats. Admittedly, I did get a no-money-down ARM, with a rate of 5.35% for the first 5 years. But it wasn't a sub-prime mortgage. I had and still have good credit. The plan was to sell it before the adjustable rate kicked in 5 years later, and move on to a house. Unfortunately, my unit has dropped in value. Similar units in my complex have recently sold for $10K to $20K less than I owe on my unit. I owe more than I could get by selling it. So I may be screwed if I can't sell it for at least what I still owe in the next couple of years. Perhaps this crisis will calm down before the adjustable rate kicks in (about 2 years from now), and I'll be able to refinance before then. But there's definitely no house in my near future.

[LiberalEsto]

14. It affects student loans too

I tried to find a $3000 student loan for my daughter last month. Everything was variable rate - no fixed rate loans available. A year ago, fixed rate loans were easily available.

Banks seem to be avoiding lending money to consumers at today's low interest rates. They do this by offering variable rate loans that they can jack up the minute the rates go up again.

But of course they won't lower interest rates on credit cards.

Everything that's happened since * stole the 2000 election has diminished or eliminated consumer rights, or weakened regulation of industries such as banking, pharmaceuticals, healthcare, oil, etc. They're having a field day raking in the dollars, while the average American gets screwed over more and more each day.

I hope and pray the next president and Congress manage to undo the damage and restore consumer rights as well as restrictions on the big industries. But given the track record of the current Congress, I don't think there will be anything but token improvement.

[4dsc]

15. again, the middle class is tapped out

and politician's don't really know how to handle this situation.. Is the only real way out a depression??

[Doctor_J]

16. Why all the worry? A Harvard MBA just told me that the fundamentals are sound

and so did his resident expert on the USSR. Why would I listen to a bunch of world-class economists?

Edit: And I am sure the $600 that we're all going to get to help balloon the national debt will clear this problem right up.

:eyes:

[Malidictus Maximus]

20. ARMS

should be severely restricted. I'm not usually supportive of big brother trying to protect people from themselves, but anyone who can't calculate compound interest and think in terms of worst case scenarios is a sheep before wolves in this game.

"If you can't afford the fixed rate, you can't afford it."

That's what the old stockbroker down the street, a wise and ancient fellow, over 85 years old and still trading stocks, told me when I was 20 or so, over two decades ago. He was dead right.