Via Kevin Drum:
Countrywide Financial Corp., the nation's largest home mortgage lender, just saw is stock tumble more than 10% after it announced a 33% drop in second quarter profits. The problem? Defaults and delinquencies have spread out of the sub-prime market into the prime market. And they expect things to get worse, not better.
Countrywide said payments were at least 30 days late at the end of second quarter on 4.56% of prime home-equity loans serviced by the company, up from 1.77% a year earlier.
Payments were late on 23.71% of sub-prime mortgage loans, up from 15.33% at the end of the same period in 2006, the company said.
As Nouriel Roubini pointed out this morning, six of the top seven stories on Bloomberg were directly related to the housing market. Here's his takeaway:
...the housing recession is getting worse, the credit crunch in mortgage markets is spreading from subprime to other mortgages, the contagion to other credit markets is spreading as corporate spreads are significantly rising (see the latest piece by Pimco's Bill Gross), and the negative effects of the housing recession on other parts of the economy (private consumption, autos and other sectors related to housing) are increasing. So much for the consensus view that the subprime problem are a "niche problem that is contained". These problems are not contained: they are rather spreading to other financial and credit markets and to real side of the economy.
All of this brings to mind a graph Hilzoy put together a few months back. No matter what reassurances some analysts might give, we are only just now entering the period with the most potential for economic instability. That we're seeing problems at the very earliest stage of what could potentially be a very bad year is not an encouraging sign.
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