How serious is it? It might actually be less of a problem than previously believed. A Federal Reserve Governor estimates that ARMs, in the eye of the storm, make up only about 8% of the entire home loan market. Relatively small number. Here's a bigger number. In some calculations the lenders could suffer $300 billion or more in losses. But, that's minor when we remember that the recent tech bust ate up around $9 trillion in corporate equity. So, is it more hype than anything else?
It could possibly still get uglier, yes, but nevertheless I'm beginning to consider it merely a correction. As long as it affects only 8% of the whole market, that's all it is. An adjustment. The most aggressive lenders of the past will be either bought out or eliminated through bankruptcy. And the rest will redraw their underwriting guidelines and accept the fact that there are dire perils should you get too hungry.
How did it become such a huge issue? The media and some interest groups certainly jumped on the story with guns blazing and molded it into a major event. That has enticed the politicos in Washington to hold hearings to earn points for their careers. I guess what also fanned the flame was all the earlier talk about the real estate bubble and the mortgage report was easy to tie into that. More or less a continuation of the same. Trouble in the real estate market.
Comments (4)Subscribe to CommentsComment