A few random bits and bobs from the mortgage crisis:
+ The IMF is now predicting mortgage-market losses from the will near $1 trillion.
+ That's not including losses for homeowner's from rapidly falling home values. There, Roubini is predicting as much as $6 trillion in lost value for your fellow citizens. And yes, that's trillion with a T.
+ A new report from the Center for Economic and Policy Research offers predictions for home owners in 20 US cities. Generally speaking, when average ownership costs are more than 50 percent higher than the costs of renting, you're living in a bubble. And as the report notes:
"In New York, ownership costs in the middle scenario are 109 percent higher than rental costs. In San Diego, ownership costs are 133 percent higher than rental costs. In San Francisco, it costs 161 percent more to own than rent and, in Los Angeles, it costs 168 percent more."
+ This leads to the latest from Paul Krugman. Nationwide, despite years of inflating home values, rents have remained fairly steady. Not only is this yet more evidence for the dramatic nature of the bubble that is now bursting, it also suggests that home prices - and yes, even home prices in cities like NY, SF, and LA - are likely to fall fast and hard over the next 12 to 18 months. People who live in CA might think they live in a new alternate reality, but they do not.
+ As Kevin Drum points out, a majority of subprime loans in recent years originated with mortgage brokers. And because of the way financial incentives work in the mortgage broker industry, this opened the door for loads of abuse. Kevin:
The Center for Responsible Lending compared 1.7 million "matched pairs" of loans from 2004 through 2006 and found that for loans with similar risk profiles, brokers -- the very people who are supposed to help you find the best loan deal available -- charged substantially more than retail lenders....
Bottom line: if you were a high-income borrower getting a prime loan, the kind of borrower with plenty of options, brokers didn't rip you off. In fact, they helped you. But if you were a poor borrower getting a subprime loan -- precisely the most vulnerable type of borrower, the one who most needed real help -- mortgage brokers screwed you. Over the course of 30 years, the average subprime borrower getting a loan from a broker "would pay $35,874 more in interest payments, equivalent to an interest rate approximately 1.3 percentage points higher than a similar borrower with a retail loan."
Yet another nail in the "people who got in over their heads are getting what they deserved" argument.
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