Bigger Wave of Housing Loan Defaults Looming

The NY Times reports today that although the “first wave of Americans to default on their home mortgages appears to be cresting,” a second, far larger group of potential loan defaults is looming, because now, even “homeowners with good credit are falling behind on their payments in growing numbers.”

The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

The mortgage troubles have been exacerbated by an economy that is still struggling. Reports last week showed another drop in home prices, slower-than-expected economic growth and a huge loss at General Motors. On Friday, the Labor Department reported that the unemployment rate in July climbed to a four-year high.

The loan defaults are “likely to accelerate because many homeowners’ monthly payments are rising rapidly.” 

The higher bills come as home prices continue to decline and banks tighten their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are “alt-A” loans, many of which were made to people with good credit scores without proof of their income or assets.

“Subprime was the tip of the iceberg,” said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. “Prime will be far bigger in its impact.”

The problem is that “many borrowers who got these loans during the boom had good credit scores,” but now, as the value of homes is falling, “many of them owe more than their homes are worth,” and “analysts believe that many will not be able to or want to make higher payments.”

Who can afford higher house payments as the price of gas, food and everything else continues to rise? As Peter Bernstein said yesterday in an OP/ED in the NY Times, the “pain from any one of these price increases would have been bad enough.” Being hit with all three at once is more than most consumers can bear. Now, “nothing will turn the economy around until we can restore some sense of hope and security among consumers — perhaps even as food and oil remain painfully expensive.”

The economy teeters on the edge of not just a recession, but also a more profound decline where trouble in any single sector can spread breakdowns throughout the system, driving unemployment to intolerable levels. To sit back and let nature take its course is to risk the end of a civil society.

It’s hard to remain optimistic when the bills keep rolling in, the cost of everything keeps rising and the paycheck seemingly gets smaller or simply disappears due to job loss. To say that many Americans are simply screwed in the midst of all of this is an understatement. And relief won’t come from 4 – 8 years of John McSame. Our best hope is Barack Obama.

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5 Responses to Bigger Wave of Housing Loan Defaults Looming

  1. As Obama and McCain intelligently politically debate the race card to clarify negative ads and confuse? Along with the media they’re doing a great job or are they ? Obama is on task today and speaking about hybrid cars and Energizing America. Six years and hybrid cars are on the road. Good ! Who pays the gas prices until then and ends up in the street because of the housing crisis ? Short term pain for long term gain ? What are the details and specific’s of Obama and McCain’s plan ? Not reviewing specific or detailed  message and both seem to be busy with negative attacks that distort and deflect information and or defend from the other as the media jumps in.McCain calls congress back to Washington for off shore drilling and more nuclear plants.The temperature in Texas is at all time highs hot. Global warming and research those nuclear plants that cool in exchange with the ocean. Drill more ? No problem and we’ll borrow a horse to ride to work until 2030 when we see little relief at the pumps if we do. “We’ll be stronger if voices are heard.” Clinton never leaves without a plan and her details. They all copied Clinton’s economic plan on the details and specific’s of how all this energize energy and these wonderful ideas can happen. Obama and McCain fail to provide specifics in their messages with detail as one may compare with Hillay Clinton and her experience shines through as expected.

  2. What is the comprehensive plan to accomplish ? Find Clinton for details on how.Its like watching a class room and teams divided into groups. Great ideas moving on energize ! Now how and the class looks at Hillary Clinton as her team works on critical thinking and figures out the specifics and details of how to get all these great ideas done. The bottom line is ,we have a housing crisis and think you’ll seriously find more details on intelligent solutions with Hillary’s plan than McCain and Obama’s. While the McCain and Obama team fuss over a race card and start throwing spit balls at each other, Hillary stays out of it and continues working on details on how to solve the problems. Meanwhile the other class is playing the news and here they come again asking questions and look out, cause they’re trained to sell a story.

  3. Obama and McCain making clear cut diferences of one another’s plan. Obama scores again ! McCain is better when they let him go without a script but it throws his team off on being consistant in message. Obama never reads a thing in a speech and that’s amazing ! A plus and he’s the best speaker we’ve ever had. Clinton’s team says,yeah we know but his team doesn’t back it up with the details and specific’s of how and we do. Get on the freight train to Denver Clinton and explain how we do it. No body can come close to Obama on a speech and no doubt about it. Obama could sell snow to an Eskimo and he’d think he got a deal but how and where are the expanations with details on the solutions of all these great speeches and ideas your selling in contrast between your plan an McCain’s plan. Listen to Hillary Clinton take a problem in a debate or a speech and explain the problem but also communicate how, in detail with lasor specifics on how, to to get it done. That’s the difference between speeches vs solutions. It’s also experience on a national level and at her job as the sun shines for Hillary in Denver.

  4. Let’s view Obama’s economic agenda specific’s on the 15 billion and go find Clinton. She’s got more specific’s and details on how with economics than any of them ! Which plan is better to get it done and here comes the team with their micro scopes on the financial analysis to decide who has the best plan. The news team went to find them fast. Bill Clinton just flew up out of his seat and is quoted saying,”I’m not a racist” and the news team is flying out the door. A desk just got knocked down and good job Bill Clinton ! He’s not mad but has strong feelings about it all and rightly so. He’s reflecting on things he wished he’d done and some things he said , he wished he hadn’t but , Bill Clinton isn’t a racist and don’t call him a racist. Obama’s team says,that’s cool and wants Bill on their team as well as Senator Clinton. The news just said Obama needs to put Clinton on as Vice President ! Ya think ? No question ! ALL ABOARD ! Let’s just go to Denver and delegates place your votes ! Clinton was the one to beat McCain and he’s ahead of Obama in some polls now and gaining. Obama was way out in front but not anymore. Nancy Pelosi is selling Chet Edwards for VP. ? Who is that and not sure we got his name right. Obama says give FL. and MI. full vote. Better late than never ! School bell rings and we all take  the train to Denver for Clinton to win in the end ! Amen !

  5. “risk the end of a civil society”That seems to be enough to argue for the creation of a European style social safety net.