The Depth and Breadth of the Mortgage Loan Problem
Timing is everything. Before Countrywide announced its current analysis of the mortgage market, I had started this article:
To say that the problems with the mortgage market are completely contained, or compartmentalized, without any farther reaching effect is akin to the Captain of the Titanic dismissing the iceberg as a glorified ice cube.
The depths of the problems in the mortgage markets frankly are not easily quantifiable and most probably larger than many on Wall Street are willing to admit. Only the first wave of Adjustable rate mortgages has worked through the system. There is over another $1Trillion that is set to adjust over the next couple of years. This is only a piece of the problem.
Much of the better quality loans and even the fixed rate portfolios are vulnerable. Prices have been sliding, credit standards have been tightening and interest rates have increased. This makes refinancing a much more difficult proposition.
Even if a nationwide recession is not in the cards, our economy has seen “rolling recessions” or specific areas that experience economic contraction. Areas such as Florida are arguably there- except for the two quarters of negative growth need to officially recognize the situation. The contraction in direct economic real estate activity spills over into all other layers of the local economy. Architects, lawyers, appraisers join real estate agents and brokers, who soon then affect car dealers, restaurants and so on and so on. The process is in place, so for now the questions are how long and how deep will this phase of the cycle be? And lastly, are you prepared?
To say that the problems with the mortgage market are completely contained, or compartmentalized, without any farther reaching effect is akin to the Captain of the Titanic dismissing the iceberg as a glorified ice cube.
The depths of the problems in the mortgage markets frankly are not easily quantifiable and most probably larger than many on Wall Street are willing to admit. Only the first wave of Adjustable rate mortgages has worked through the system. There is over another $1Trillion that is set to adjust over the next couple of years. This is only a piece of the problem.
Much of the better quality loans and even the fixed rate portfolios are vulnerable. Prices have been sliding, credit standards have been tightening and interest rates have increased. This makes refinancing a much more difficult proposition.
Even if a nationwide recession is not in the cards, our economy has seen “rolling recessions” or specific areas that experience economic contraction. Areas such as Florida are arguably there- except for the two quarters of negative growth need to officially recognize the situation. The contraction in direct economic real estate activity spills over into all other layers of the local economy. Architects, lawyers, appraisers join real estate agents and brokers, who soon then affect car dealers, restaurants and so on and so on. The process is in place, so for now the questions are how long and how deep will this phase of the cycle be? And lastly, are you prepared?
David Levin
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