With Economy At Breaking Point, Housing Crisis May Get Worse

Housing Lenders Fear Bigger Wave of Loan Defaults

I recently had a conversation with a good friend of mine that is living in northern California.  A decade ago, she was just like any overachieving American.  she earned a degree at the University of Southern California and pushed her way into an engineering setting not very friendly towards female employees.  Despite the difficulties, she decided it would be best to go back to school and further educate herself so she could move up the ladder more quickly.

What was once a dream became a reality after she graduated from Berkeley.  With money in the bank to buy that first home and continue living the American dream, she’s now in an unfortunate predicament.  Despite her multiple degrees, high IQ and excellent salary, she is now just a victim of the corruption in the home mortgage industry.  Some Republican Bush loyalists will always blame the individual who ‘knew what they were getting themselves into’, but the fact is that millions of Americans have been screwed by corporate greed and corruption and now we’re starting to see the fallout of these predatory practices that Bush loyalists have defended over the years.

From ‘America’s leading liberal paper’ NY Times:

The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.  Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.  The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

The mortgage troubles have been exacerbated by an economy that is still struggling. Reports last week showed another drop in home prices, slower-than-expected economic growth and a huge loss at General Motors. On Friday, the Labor Department reported that the unemployment rate in July climbed to a four-year high.

Housing Lenders Fear Bigger Wave of Loan Defaults - NYTimes.com.

The messy situation is probably going to get worse before it gets better and for many Americans like my friend in Cali, they’ll have to do a bit of praying and hoping that economy recovers fast or they may lose more than their homes.

Fred Soto is an Attorney and Entrepreneur from the Silicon Valley.
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