At what point will people recognize that this is a crisis?
The percentage of U.S. mortgages entering foreclosure in the first three months of the year was the highest in more than 50 years, according to the Mortgage Bankers Association.
As the association released its numbers, the Federal Reserve held a hearing to determine whether regulators could do anything to crack down on abusive lending practices, which have exacerbated the problem...The most dramatic fallout took place in the subprime market, which caters to people with blemished credit or other factors that make them a risk to lenders.
Those borrowers entered foreclosure at a rate of 2.43 percent, up from 2 percent the previous quarter. The percentages seem small, but they are far above norms, particularly in a healthy economy. The concern is that the mortgage industry's troubles could damage the economy if they are not contained...
The high translates into about 254,591 mortgages, or one in 172 loans, the association said.
The problems weren't uniformly spread around the country. Doug Duncan, chief economist for the mortgage bankers group, said the rate of new foreclosures would have dropped had it not been for big jumps in California, Florida, Nevada and Arizona. He said high rates in Ohio, Michigan and Indiana also drove up the overall percentage of loans in foreclosure.
Some who track the industry say the worst is yet to come.
"We think we're just starting to see the tip of the iceberg," said Karen Weaver, global head of securitization research at Deutsche Bank Securities. "We believe more and more [subprime borrowers] will default, and that's a process that we think will happen over two years."
One in 172 loans? One in 31 sub-prime loans?
The Post frames it as a story of "predatory lending," but I'm not sure that's entirely accurate. No doubt some - perhaps even most - of the problem involves predation, but surely the irrational exuberance of the housing bubble is also at work.
Over the past ten years, among a fairly sizable segment of the middle class the idea of home ownership morphed from an investment model based on lifetime security to one based on short-term profit. People started buying homes with the expectation that they could sell them for sizable profits just a few short years later. Just like the tech bubble before it, eventually people started treating the housing bubble as if it was some sort of "new reality," leading to all kinds of crazy low/no interest balloon payment mortgages that are in many cases only now coming due. Had the bubble not burst these novel strategies would have of course worked, but expecting a bubble to last forever is, well... insane.
Markets - free or not - cannot exist without regulation. There are no naturally occurring markets in the known universe, or at least not in the universe I know of. The question therefore is not if to regulate markets but how. Clearly the regulations that created this mess are not working, and government, the agent that created and regulated this market, must act to set it straight. When the "free market" conservatives begin telling us how we should let "the market" sort this out on its own, remember to keep that in mind.
UPDATE: Much more here from Slate, including some interesting suggestions on how to clean up this mess. Also worth noting? Nonprofits do a much better job of meeting consumers' needs than do for-profit operations. Shocking, I know.
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