CHESSNOID

I just read in the Orange County Register that housing creates 10% of U.S. layoffs. The study has a nice breakdown by industry. I see the industry I work in getting bigger. As people start to lose their homes because of non-payment of their mortgages, I think people will have no problems defaulting on their credit cards and personal loans. It only makes sense that people will pay their house loan to have a roof over their head, then the auto loan to keep the car that gets them back and forth to work, then whatever is left will be spent on food and utilities. And if they have any money left, then they will pay on those maxed out credit cards and 100% interest rate loans. Trust me on this one, they won’t because there will be no extra money left. This will in turn generate more collection jobs, as different companies try to handle the extreme increase in the volume of late payments in their accounts receivables.

The previous company I worked for did unsecured loans up to $20,000. I worked in the pre-charge off department. The trend I had seen was an increase of 1st payment defaults. That means the borrowers who received these loans had not even made a single payment. The people I spoke with were not professional debtors or deadbeats. They would actually speak to me in a civilized manner and tell me of the dire situation they got themselves into. The common theme I would hear is that their income had dropped, their mortgages were behind, and that they took this money out to bring there mortgage loans up to date. Most of these people were self employed or strictly commission driven. If they weren’t real estate agents or loan officers, they were directly or indirectly related to those fields. Escrow agents, appraisers, title company employees, etc. You get the picture. Some of these people, I would have never guessed were on a commission or bonus structure.

It definitely became increasingly difficult to collect on these type of situations. Basically, if they aren’t paying their mortgage, then they aren’t paying anything else. All the money is going to food and utilities. You do get to know some your customers and know that some of them are sincere and are just in a bad situation. I think most people are living paycheck to paycheck, so I do feel for a lot of these people. Even though most of the borrowers I dealt with were in the real estate field, they didn’t truly understand what type of mortgage they were getting or just focused on all the money they were gonna make, when they “flipped that house”.

They all would tell me similar stories of how their monthly payment went from $3,000-$4,000 a month to $5,000-$6,000 a month. Of course they would pay their mortgage and let everything else go, but they didn’t want to think about where they would get there next month’s payment. So they would get these crazy unsecured high rate loans, that they would not get under normal circumstances to save their house. When those loan payments went up 50%, these peoples’ paychecks didn’t. So you would get “A” quality customers experiencing financial problems for the first time. I keep thinking this could have been me when I was considering moving to San Diego.

Now that the real estate industry is getting more focus in mainstream media on how bad this market is, I think the momentum is just picking up. This is just the beginning and will affect all of us and have a bad impact on the economy. The stock market took a big hit just because countrywide mortgage is having problems and is a big leaguer in the lending industry and not even a true sub-prime lender. DrHousingBubble has a chart (exhibit 42 ) that show the resetting of adjustable rate mortages on his site. Dr. Housing Bubble

Based on my interpretation of that chart, November looks like the biggest reset of adjustable rate mortgage payments which means right about December and January this housing debacle will effect the entire economy in a tremendous negative way. This will not be good for politicians, since the public will have to blame somebody. On the bright side, there will be more good and affordable deals in the future.