Yesterday I posted a diary that unnerved those who read it, and scared me even as I was putting it together. You can read it here.
This evening another piece of the puzzle fell into my lap when I checked the NY Times online. I really do not like this, and neither will any of you. More below the jump:
The story is "Home Lender's Woes Fuel Market's Decline."
Now, most of the time I take fluctuations in the stock market with a small mountain of salt. One, this is a segment of our economy that tends to dip up and down for the apparently silliest reasons on a day to day basis. Two, I'm not in it. Three, even if I were, I know that you have to look at the longterm trendline, and not panic over modest fluctuations in value. Otherwise, you'll drive yourself nuts.
But this quote just jumped out at me:
In a conference call with analysts that lasted a lengthy three hours, Countrywide’s chairman and chief executive, Angelo Mozilo, said home prices were falling "almost like never before, with the exception of the Great Depression." He added that because of a large number of homes on the market, the housing sector would continue to shrink until sometime in 2008 and not begin growing until 2009. Shares of Countrywide fell nearly 11 percent, or $3.56, to $30.50, the lowest the stock has been in nearly two years.
What caught investors by the greatest surprise was a stunning rise in delinquencies on home equity loans, lines of credit and second mortgages to homeowners with good, or prime, credit. Until recently, most mortgage industry officials had been saying the problems with defaults would largely be contained to borrowers with weak, or subprime, credit. [emphasis added]
The article goes on to state that these were not necessarily the over-leveraged, and definitely not due to the higher-risk mortgages. These are people who are falling behind because of divorces, illnesses or other family emergencies or life-changing events, such as job loss. With the real estate market as slow as it is, these people cannot get out from under homes they can no longer afford in time to save their good credit.
Thus far, the percentage numbers look relatively low for these types of defaults. But when we add these defaults to the adjustable rate mortgage defaults, the difference between defaults in June 2006 and June 2007 is up 15.6%. Here's the paragraph where I determined that number:
About 5.4 percent of the home equity loans to prime customers that Countrywide held an interest in were past-due at the end of June. That is up from 2.2 percent at the end of June 2006. By comparison, more than a fifth of subprime loans were past due at the end of June, up from 13.4 percent at the same point a year ago.
I don't like this.... Somebody please pinch me and tell me I'm just having a bad case of the heebie-jeebies.