I Thought Only Sub-Prime Mortgages Were in Trouble?
By Kurt O'Keefe, Attorney at Law on Aug 2, 2007 in General Bankruptcy Information
Many of the TV investment talking heads, and government officials, have claimed the default crisis is contained in the sub-prime sector. Not so. More than those infected by the subs are headed for bankruptcy.
This story shows that the negative effects on the economy of the over-lending and housing bubble bursting will not be confined to the subprime market.
The increase in foreclosures puts more houses on the market, depressing housing values further. As the article states, the decrease in value puts pressure on the so-called Alt-A mortgages, one reason being because it prevents re-financing against increased equity as a method for people to hang on to those houses.
And, now that the horses have all left the barn, lending standards are being tightened. So, fewer people will qualify for those Alt-A loans.
The prime mortgage companies are also being hit by the hundreds of millions of dollars of ARMs coming off the teaser low initial rates in the next couple of years.
The tighter lending standards also affect the companies like the one in the story, whose access to easy money is disappearing.
Consequences for the woman on the street? More business failures, lower home prices, tighter money, slower economy, until the Fed prints more dollars, causing inflation, and all that goes with it.
There is always pain in market corrections, just as individuals experience pain from the mistakes we make.
Hopefully, the government does not step in and bail out the bad guys again.
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