Mortgage Informer

I threw this in a sidebar to one of the Fannie/Freddie pieces Tuesday but I think it is important enough to highlight.

First a refresher… many of the same pundits and in fact government officials who assure us everything is fine and dandy and we’ll be out of this soon enough (and have been repeating this matra since the first hedge fund explosions in Bear Stearns last summer) have a history. A history we can look up. For example the now infamous statements

U.S. Treasury Secretary Henry Paulson said on Friday the housing market correction appears to be at or near its bottom and that troubles in the subprime mortgage market will not likely spread throughout the economy.

“I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained,” he added.

Dateline? April 2007.

Meanwhile bloggers dismissed as worrywarts were writing in 2007.

Anyhow, the first “round” of financial issues is probably at this time “priced in” the banks – that being “subprime”. While I argue this is only stage 1, and we will have the next rounds of alt A mortgages, and prime mortgages, along with credit cards, along with auto loans, along with student loans – that’s a problem for another day as the foreign Middle East/Far East cash infusions has people singing a sweet tune (I believe this is the 9th “this is the bottom!” call by CNBC). While that will be proven to be wrong in my opinion down the road, for “now” the financials seem able to hold a bid.

I was stating that subprime was not the disease but just the symptom of the disease. This was dismissed by the punditry – that seems like ages ago – before the socialization of losses really began, before Soc Gen, 75 basis point cuts in emergency session, before Bear Stearns, before Fannie/Freddie – ah innocent times.

So as we got into 2008 we saw first the beginning stages of Alt A mortgages degradation late this winter. (What is an Alt A mortgage? The traditional definition of Alt-A has been loans that have less than full documentation, also referred to as low doc/no doc loans.)

This market is so difficult right now trying to balance the reality of what is happening on Main Street with the current and future political interference into free markets. Some of the news out of the real economy is really scary – I had mentioned last August when “subprime” was the big issue that the mortgage issues will climb the food chain, into Alt A loans and then finally into prime. Subprime is just a convenient label and the weakest credit risks, so they would be the first to go. But not the only – as was conventional wisdom back then i.e. “those darn subprime people are the cause of all this – they never should of had a house in the first place”. It is so much bigger than that – a truly stressed consumer up and down the food chain. Here is some “reality” of just how quickly the vintages of Alt A mortgages from 2005-2007 (the worse era of reckless lending) are degrading.

Related posts:

• Mortgage group separates myths from the facts
• Mortgage fraud sweep marks a turning point
• Bad Credit Mortgage Refinance
• Mortgage-Bond Leverage Reaches 10-to-1, Markets Heal
• Home shoppers rush in as mortgage rates fall

Tags: Mortgage Problems