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Sooner or later all these layoffs create a trickle effect. Alot of these recent layoffs are white collar office jobs - very hard to find another in today's economy. Now prime mortgages are going into default.
snippet:
"More than 2 million prime mortgages, traditional loans for people with good credit, are now delinquent. That's 624,000 more than this time last year, according to the mortgage bankers foundation, Tracy reports."
Call me crazy, but I have a feeling that bankers are going to be fine with that kind of rise -- they are accustomed to planning for a rise in delinquencies that pretty much parallels broader economic slow downs. They do not LIKE this, but they have decades of experience building reserves into their risk models.
This is NOT like the log jam in the credit markets... While no "bad news" is ever warmly received by Wall Street I do not believe that the normal "down cycle" type news will cause any spreading panic. These kinds of increased defaults lead to reduced profitability / charge offs, but unless there is something lurking in these defaults (a mass move to try and get in under the wire for debt forgiveness?) it is part of the normal thinking of lenders... It COULD result is pressure from other part s of the banks business to tighten lending standards/raise rates, but given the wide spread knowledge that things are already tight I don't see that as too likely.
You have to have some perspective -- once upon a time banks were sleepy places that were content to make a tiny margin on the operations. The consolidation of banks with insurance and investment firms turned those sleepy boardrooms into shouting matches as the new factions told the old that "puny profits were not good enough". The bankers responded (among other ways) by amping up the profitability of tradition business lines. Now the insurance guys and investment guys are not going to jump across any board room tables and throttle the old fashioned mortgage guys. They are all gonna lick their wounds together and hope that the whole thing can be patched togther by the new administration as speedily as is prudent...
Call me crazy, but I have a feeling that bankers are going to be fine with that kind of rise -- they are accustomed to planning for a rise in delinquencies that pretty much parallels broader economic slow downs. They do not LIKE this, but they have decades of experience building reserves into their risk models.
This is NOT like the log jam in the credit markets... While no "bad news" is ever warmly received by Wall Street I do not believe that the normal "down cycle" type news will cause any spreading panic. These kinds of increased defaults lead to reduced profitability / charge offs, but unless there is something lurking in these defaults (a mass move to try and get in under the wire for debt forgiveness?) it is part of the normal thinking of lenders... It COULD result is pressure from other part s of the banks business to tighten lending standards/raise rates, but given the wide spread knowledge that things are already tight I don't see that as too likely.
You have to have some perspective -- once upon a time banks were sleepy places that were content to make a tiny margin on the operations. The consolidation of banks with insurance and investment firms turned those sleepy boardrooms into shouting matches as the new factions told the old that "puny profits were not good enough". The bankers responded (among other ways) by amping up the profitability of tradition business lines. Now the insurance guys and investment guys are not going to jump across any board room tables and throttle the old fashioned mortgage guys. They are all gonna lick their wounds together and hope that the whole thing can be patched togther by the new administration as speedily as is prudent...
Chet, the problem now though is that many of these banks don't service the loans..they packaged them up into that AAA rated toxic waste and speculated it off on Wall Street at a leverage of up to 60:1. A lot of times these banks can't even find the paperwork to prove they have a right to the home.
It's not the mortgage deliquency itself, it's the repurcussions of the additional speculative investment created from it.
White collar workers laid off, and then three to six months later they are losing a house to foreclosure? I'm not buying it. They were living beyond their means if that was the case. What ever happened to saving 10% of your income towards retirement and 10% of your income for your emergency savings? Don't say it can't be done! It can be, if you live within your means and bought a home with realistic debt-to-income ratios to begin with. That means driving a used Buick when your friends are driving BMW's. It means living in the 2000 s/f house when your friends are living in 4500 s/f McMansions. It means vacationing in the Pocono's instead of Maui. There are far too many people living so far beyond their means that it's pathetic.
I have neighbors with a Bently, Mercedes, Audi, Lexus, and Lincoln in their driveway, and their home is in pre-foreclosure. They can go live in their cars for all I care. I'll continue to drive my paid for sedan with 93K miles on it and save the amount I'd be paying towards a car payment so that when I do need to replace it, I'll be able to pay cash--or take a 0% finance deal and keep that money in the bank. Most people these days would take that monthly cash and spend it on electronics or other things they want--rather than need. If people lived within their means and had a reasonable 6-12 months expenses safety net, they wouldn't be in the situation they are in.
There's a lot of layoffs in the financial industry since last year. Some people cannot find another job in their field.
And it's been known for some time now that the savings rate of Americans were practically nil.
Stocks and your home's value were all it took to declare your wealth.
For years the mantra was "credit, credit, credit". But credit means debt.
Not much emphasis was put on savings. When you have a country that depends on credit to survive, savings is NOT what they want us to do.
We are not the American "savers", we are the American "consumers".
Yep, in a consumer economy savings is exactly what we don't need. If we start hoarding our money, the stores go broke. This is a long process to fix and while immediate savings is a good sign for people, the effects to the economy will be recessionary.
We have the layoff thing goin' on here. Not foreclosing but we're starting to really feel the pinch. Job picture is not good...
We've got a ways to go before foreclosure would be an issue so Lord willing something'll come along before then.
But yeah, I can say with certainty, it can happen to any of us.
This IS the "hard times" we've been hearing about...we're living it ourselves and frankly, it ain't much fun. I suspect we will be in good company in the coming months, unfortunately, as more and more layoffs take place.
Yep, in a consumer economy savings is exactly what we don't need. If we start hoarding our money, the stores go broke. This is a long process to fix and while immediate savings is a good sign for people, the effects to the economy will be recessionary.
Fiscally responsible people have managed their finances and saved all along. Saving now is not a knee-jerk reaction, it's what has been going on our entire lives for many of us.
I haven't drastically altered my spending habits, I continue to buy the things I need and occasionally purchase things I want when I've got the cash to do so--without incurring debt. I'm not going to alter my financial habits and go on a spending spree to help bolster an economy that is in trouble because of people who didn't understand the concept of living within thier means and saving for a rainy day.
Hopefully everyone can lose their job and foreclose. I'll be in the market around 2011-2012 and I want to pick up a good deal.
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