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Friday, August 31, 2007

I Read the News Today, Oh Boy ... More Subprime Lending Woes

I read a lot of newspapers online, but we still get the Cleveland Plain Dealer and the New York Times in paper form and that's what we read during breakfast. This morning I turned to the business sections in each and was struck once again by the number of stories that relate to one degree or another to the crisis in the subprime mortage lending industry. From the PD:
* Mortgage worries are hurting automakers because "consumers were in no mood to buy a car this month as they faced rising mortgage payments and roiling financial markets, and some analysts already predict 2007 will be the worst year for U.S. auto sales in nearly a decade."

* The Gross Domestic Product grew by a healthy 4% in the second quarter, but economists expect it to slow to around 2% in the present quarter due to the current housing and credit woes arising from the subprime lending fiasco;

* Nobel economics laureate Joseph Stiglitz predicts a "prolonged economic downturn," although probably not a recession, due to the crisis. "Mortgage payments are going up, house prices coming down, incomes are stagnating. It's not a pretty picture. So the dynamics could unravel more and where it stops, we can't be sure," Stiglitz told reporters during a conference in Malaysia.

* Fairview Park-based Colony Mortgage Corp., employer of 88 at nine locations, is closing in September.
Turning to the Times:
* The Bush administration finally will announce several steps to help low-income mortgage borrowers with credit problems. Included is a change that will make borrowers who fall behind due to payment increases incorporated into adjustable rate mortgages eligible for mortgage insurance from the Federal Housing Administration, which may help them obtain refinancing. Previously Bush had insisted that market fundamental are strong and that no intervention is necessary, despite urgent pleas from Democratic leaders.

* The reason that the subprime mortgage crisis in the United States has been felt so strongly all around the world is the explosion in the global financial market of new finance vehicles like derivatives and structured products. Structured products are pooled assets that have been sliced into small, specialized pieces. The investments are so complex that international investors failed to appreciate the potential risks involved.

* H & R Block announced yesterday that the sale of its subprime lending unit, Option One Mortgage, might fall apart as credit markets deteriorate.

* The Mortgage Bankers Association, an industry group, has released a study showing that a significant portion of mortgage foreclosures involve investors seeking to turn a quick profit rather than homeowners paying for their primary residence. However, a big majority of foreclosures do in fact involve homeowners. The national average revealed in the study is 16% of defaults among loans based on strong credit relate to investors, while 12% of defaults among loans based on weak credit relate to investors.
That's a lot of news, most of it bad, and it shows how pervasive and troubling the crisis has become. In sum, the experts don't think the crisis will propel the country into another recession, but it is likely to result in at least a sustained economic downturn, with negative effects felt around the world.


At August 31, 2007 1:11 PM , Anonymous said...

Interesting --- no news whatsoever about the role of the government in creating this mortgage crisis. People who can't afford mortgages should not get them, but regrettably, the government forced lenders to give money to people who were not likely to repay the money. All for the dubious goal of increasing home ownership and helping the poor (translation: blacks and other minorities). Also, counting the number of news stories in a liberal paper like the NYT isn't particularly meaningful, and the PD is simply a rag.

At August 31, 2007 1:43 PM , Jeff said...

The government didn't force lenders to ram through loans on shoddy information and lowered standards - it was greed and the market demand for mortgages to fuel Wall Streets' slick new "collateralized mortgage obligation" investment vehicles. If government were living up to its proper role of regulating business and protecting the public, it would have detected the potential for this crisis and acted to avert it. It is only in that sense that government can be said to have "caused" the crisis.

It's just plain ignorant and racist for you to assume that the foreclosure crisis involves "blacks and other minorities" entering the mortgage market. The hardest hit area in Cleveland is Slavic Village, and the suburbs are hurting almost as bad.

I don't agree that the New York Times is a liberal paper, at least not a substantive news section like Business, and the PD is a fine newspaper.

At August 31, 2007 3:21 PM , Rybu said...

How can you say the government forced lenders? That makes no sense to me.

This is another social program but unlike something like welfare it is bailing out people who brought this on themselves! It's regretable but no one forced them to take the mortgage and the terms were made clear. Lets recognize the difference between predatory lending and subprime lenders!

I wrote a blog on predatory/subprime lending. Let me know what you think.



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