Credit Markets Bracing For More Trauma
The credit markets are bracing for more trauma as the subprime mortgage market meltdown continues to infect credit markets worldwide in unexpected ways.
It appears that the investment bankers did a bang up job in packaging questionable loans and making AAA rated securities out of them by some sort of financial magic. Unfortunately, investors are now feeling the pain as loans made to people with little ability to repay go sour.
Gee, who would have ever thought that folks who were granted housing loans without credit checks or income and employment verification might lie a bit on their loan applications? And that the appraisal and credit rating agencies would be so sloppy with their approvals and credit ratings?
Now that so many loans have soured and foreclosures have climbed to record levels the banks, hedge funds, mortgage brokerage firms, and investors who got trapped by this toxic mess have little choice but to back off from making housing loans even to credit worthy borrowers.
With the housing market still headed South and with about 2,500,000 ARM loans alone scheduled for reset in 2008 do not expect an early end to the housing market crunch. The immediate danger is that with so many lenders in trouble and with the housing market decline still in decline the US economy may head into a deep recession early in 2008.
2008 is shaping up to be a very tough year. Do not be mislead by the government assurances that all is OK.
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