CHESSNOID

All the subprime loans defaulting have definitely wreaked havoc on our financial system. I don’t think there is one business out there that hasn’t been affected in one way or another.  There are other types of loans that will soon repeat what the subprime mortgage defaults did  to our economy but on a larger scale.

International Herald Tribune:

After two years of upward spiraling defaults, the problems with mortgages made to people with weak, or subprime, credit are showing the first, tentative signs of leveling off.

But with the U.S. economy struggling, homeowners with better credit are now 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, or alt-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.

While it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said.

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 are tightening 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.

If these second wave of defaults materialize as predicted, the US economy will be up for even more challenges in the coming year. When the housing bubble burst, our economy was somewhat strong. Right now, if the same thing were to happen with the already record inventories of foreclosures, massive layoffs, and companies closing, then we will see the most severe recession in our lifetime that may be worse than the Great Depression.

I do hope our new incoming President is able to succeed where Bush failed. I also hope Congress makes better decisions than continue to make regrettable ones like the many bailouts of 2008 that still have failed to do anything except waste money that could have been put to better use.