Rusted Sky

I've been watching this - and from my perspective, it's not nearly the crisis it's portrayed to be.

First off - let's look at the problem as reported.

Mortgage shakeup won't slow subprime crisis, economists fear

Meanwhile, the number of mortgage default notices, foreclosures and bank repossessions has soared by 53% since June, 2007, with one in every 501 households receiving a foreclosure filing in June, RealtyTrac figures showed on Thursday.

Double that to June's numbers - 1 in 501, which would be about 2.4%.

The major driver of this increase isn't the economy. In this article, even during the boom times of the '90s the rate increased noticeably. So although the economy may be a factor, it's not the major one. The economy was a lot worse in the late '70s - but what was the difference?

I'm thinking it was the mortgages. All the creative stuff, which was designed to let the 'sub-prime' credit risk get into a house with little to no down payment (so no sense of ownership) - and little to no proof of actual income. Adjustable rate mortgages can be a killer - but a lot of people were lured into them because of the low initial payments. Add in people who weren't terribly responsible in the first place, and you have a default and foreclosure looking to happen.

I think there's a large number of people who ARE responsible who got sub-prime loans, and have been working towards paying them off or who converted to regular loans when they got the chance. They won't be statistics.

But the ones who aren't responsible? You'll see them bug out, and then the foreclosure process starts, and the number ratchets up by one.

On the good side - apparently about 14% of loans nationwide were subprime. So I'm thinking the monthly foreclosure rate will probably going peak at an annual rate of about 3% in a few months... and then it's going to drop back.

In the mean time - folks who've got regular mortgages don't have much to worry about. Their payments aren't going to balloon - they're not going to see a sudden demand for money from the bank - and if the economy doesn't tank and they lose their jobs they should ride out the next year or so okay. If your house loses 15% of it's value in the short run - you still have the house and the value will still appreciate. And you're building equity - look to the long term and not next week.

Huh. Me giving financial advice. Anyone knowing my financial history pre-Sue would laugh themselves sick...

J.