While folks here in Washington are focused on the eight fired U.S. Attorneys (which should, on the evidence so far, be a non-story), I’m watching what could be a truly significant development — the soaring number of homeowners who failed to make their mortgage payments in the last quarter of 2006. The problem was first reported as an issue in the sub-prime market, which involves loans to buyers with poor credit history. But the problem appears to exist in the mortgage industry as a whole. In fact, the Washington Post reports that while the number of risky borrowers who missed payments climbed to a four-year high, the number of foreclosures on all homes jumped to a four-decade high.
If this trend continues, it won’t just be sub-prime lenders who get hit; it will be the savings and loan industry as a whole and, indeed, the entire financial system. Unease over this prospect is reflected in the stock market.
It’s too early to predict dire consequences, however, so let’s wrap this up with the assessment Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard, gave the Washington Posts: “There’s some indication here, and it’s not apocalyptic by any means, that the problems might not be contained in the subprime market.”
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