Wednesday, September 8, 2010

Prime Mortgages - The New Subprime?

The default of subprime mortgages and their corresponding MBS provided the spark that ignited a firestorm of bubble era housing price corrections, but it should be obvious to all observers by now that subprime loans were just the tip of the iceberg that is sinking the USS Housing Titanic. The number of prime home loans blowing up these days far outweighs the number of subprime loans gone bad:

"The volume of these loans is depleting and the subprime universe now makes up roughly 5.4% of the total active loan market. Prime loans on the other hand, dominate the market in terms of loan type.

Prime loans, however, made it past the housing bubble without much default or trouble because or they were not susceptible to price fluctuations. Fleming warned that the impact percentage of delinquent loans in the prime space have been masked because the volume is so huge. Compared to the less than 3.5 million subprime, there are about 40 million prime loans in the marketplace, 6.2% of which were 60 days delinquent in June 2010 and 3% of which were 90 days delinquent.

"If you're looking at delinquencies and foreclosures by data type you're comparing 16% versus 40%," said Fleming in an interview. "But that's 16% of 40 million loans (prime) versus 40% of only 2 million loans (subprime)," which equals 6,355,506 delinquent prime mortgages versus 950,448 delinquent subprime mortgages." "

For those who are not mathematically challenged when it comes to loan underwriting standards, what really matters with respect to loan risk is verifiable income, solid credit history, and a substantial down payment that assures the borrower has skin (equity) in the default game.

What has happened in America and Portland with respect to substantial down payments when it comes to 'buying' a house? Bueller? Beuller?

"Substituted was a scam of liberalized lending standards that turned out to be no standards at all. In 1990, one in 200 home-purchase loans (all government insured) had a down payment of less than or equal to 3 percent. By 2003, one in seven home buyers had such a low down payment, and by 2006 about one in three put no money down.

These policies led millions of Americans to buy homes with little or no money down, impaired credit and insufficient income. As a result, our economy has been brought down and the taxpayers have had to foot the bill for bailout after bailout"

That's right, at the peak of the bubble, 1 out of 3 borrowers put ZERO CAPITAL down toward their 30+ year lease on borrowing money from the bank. That's "affordable home ownership"? It's actually a lot more like debt/tax slavery at the feet of the money changers (banks).

Meanwhile, our elected officials continue to juice the easy loan money spigot, at which the same mathematically challenged masses continue to drink and borrow at 95% loan to value. Not to worry, these new loans are guaranteed by your future taxes due, and Freddie/Fannie have an UNLIMITED bailout backing from the US Treasury through the end of 2012. Thank you Christmas Eve CONgress!

Whether you rent, own outright, or 'own' a loan payment that's due to the bank -if you pay any sort of taxes you will be paying for the housing bubble's largess. This includes the bonuses for the winners, and the bad debt for the losers. We're all gonna pay suckas!

The banks are too big to fail, they have achieved regulatory capture over our elected officials, and they will not be allowed to lose on the loans they made on our behalf (prudent or otherwise). The banksters have bonuses due that YOU need to pay via ever increasing taxes and fees on your labor/consumption -past, present, and future.

"And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place."

- US Senator Durbin, April 2009