Thursday, February 15, 2007

Pull on the rug here >>>>Subprime

I have this sneaking suspicion that we are about to pull the rug out from under underneath the entire economy. The mortgage industry is struggling particularly in the subprime market for borrowers with low credit scores or adverse histories. As mortgage companies are taking loses they are also constricting guidelines for who can get a loan. The most recent constriction was around piggyback loans where borrowers can essentially borrow with no money down and get a first and second to avoid mortgage insurance.

I fear that in cutting off these products you will increase loan default. Borrowers who took an adjustable rate mortgage will no longer have the means to convert to fixed rate loans after their payments go beyond their ability to make the payments. This increase in default and constricting of the market of who can afford a home will have a ripple effect throughout the economy and I believe if not bring it to a recession at least stall growth. I would suggest to other lenders to focus on the problem of decreasing the amount of payment option arms, increase income verification and increase liquid reserves to ride out losses. This could actually be a good time to be in the piggyback product as other lenders exit the business and the demand to convert to fixed rate loans is growing.

4 comments:

Megsta said...

huh? does this mean the market will be good for me to buy in June of 2009? please say yes... cuz that's when I'm buying!!!! (ps I finally finished that book - the ending made it worthwhile - thanks!)

Brian in Mpls said...

If you have good credit and can afford to put money down it is always a good time:)

Matthew said...

Wow, you're still employed there! That's awesome ;)

Rocketstar said...

I think it may be time to SHORT Countrywide as they have yet to see the impact in their stock prioce, but it has to be just right around the bend....