Beyond the Subprime Lending Crash: The Next Mortgage Market Crash
A lot has been said about subprime lending and the crash that resulted from shoddy lending practices to those with poor credit. But what about the next expected wave of mortgage loan defaults? The next mortgage market crash is expected to come thanks to Alt-A loans — loans that were made to people with good credit.
The New York Times offers some insight into how the next mortgage market crash may come about:
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.”
Indeed, it does appear that the confluence of economic slowdown and falling home values is likely to cause a real problem. As real wages fall, and prices rise due to inflation, more pressure is being put on household budgets. Add climbing unemployment numbers to the mix, and things could get ugly for those who could formerly afford their home mortgage loans. Where does the mortgage payment fit? After you pay the transportation costs to get you to your job? After you have bought food for your family? Or do you make sure your mortgage is paid and cut back everywhere else?
And, without the ability to refinance…well, you can see where things are headed on that front.
So, even though we appear to be recovering from the subprime lending crash, it may come just in time to feel the effects of the next mortgage market crash.
Tags: subprime lending crash, mortgage market crash, home mortgage loans, Alt-A loans,
unemployment numbers, refinance
