This week the stock market seems a little more stable, and the fed has injected more liquidity in the markets. But don’t be confused. Things are bad and could get much, much worse.

The top-line story is that July foreclosures are 9% above June. Recall several facts. First, foreclosures come about 6 months after default. And if ARM resets are a predictor of future default and foreclosure rates, the amount of subprime loans reseting in January and February (these numbers) will double by the end of this year. And these levels of default and foreclosure will stay pretty solid through the end of 2008. Just to be clear, some analysis from John Mauldin:

Research by RBS Greenwich (assuming I read it right) suggests that 20-23% of the subprime loans made in 2006 will go into default and foreclosure. I talked with one head of a mortgage brokerage business in California this week (he has over 800 brokers who work for him) and he thinks that home values in certain areas he services could drop by as much as 50%.

That doesn’t make happy voters. Remember that there’s aren’t just speculators, but people getting second mortgages, new housing, or other perfectly reasonable people, except that they didn’t know what they were buying. And a lot of these were just out of reach:

"The loan application and review process for ‘no-doc’ loans was so lax that such loans are referred to as ‘liar loans.’ In a recent report by Mortgage Asset Research Institute, of the 100 loans surveyed for which borrowers merely stated their incomes on loan documents, IRS documents obtained indicated that 60% (!) of these borrowers overstated their incomes by more than half.

Categories: economy


sampo · August 21, 2007 at 1:56 PM

say it aint so soren. for the first time ever today i see an add for mitt romney for president on the left.

eye · August 21, 2007 at 2:10 PM

huh? I accept ads from anyone (accept dems)

sampo · August 21, 2007 at 6:41 PM

Oh, ok. I hadn’t realized that.

I usually notice your ads. I definitely would have recognized a Mitt add had I seen it before.

Maverick · August 22, 2007 at 5:14 AM

You keep hammering on about the housing market. While I don’t disagree with you that this will become bigger than it is, I fail to see how it, specifically, will become a big ’08 issue. It’ll probably push up ‘the economy’ on general voters’ lists of concerns, and as such will make tax cuts or redistribute measures more salient, but I don’t see how it will be a huge spanner in the works for any of the candidates running.

eye · August 22, 2007 at 6:06 AM

I think that this will be worse for Republicans. And 3 of the worst states are Michigan, Nevada, and Florida are early primary states.

I think that, for example, Hillary’s early activity will help her a lot in the general.

Some sort of pre-emptive strategy by GOP leaders would be quite good.

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