Housing Market Crisis Worsens
by Jeff Davis
Another major mortgage lender is now swirling around the bowl. The business-oriented Bloomberg news service reports “American Home Mortgage Investment Corp. shares plunged 90 percent after the lender said it doesn’t have cash to fund new loans, stranding thousands of home buyers and putting the company on the brink of failure. Investment banks cut off credit lines, leaving American Home without money yesterday for $300 million of mortgages it had already promised, the Melville, New York-based company said in a statement today. It anticipates that $450 million to $500 million of loans probably won’t get funded today, and the lender may have to sell off its assets. ‘They can’t function without access to capital,’ said Bose George, an analyst with KBW Inc. in New York. ‘The company either has to file for bankruptcy or go through some type of rescue or restructuring, and either way will leave almost nothing for the common shareholders.’”
It’s called the law of diminishing returns. A certain number of loans are expected to fail, and the failures are starting to exceed expectations. Even worse is the fact that many homes have plunged 20 percent in value, meaning the mortgage lender is losing a lot of money per bad loan. The “home lending industry” has been scraping the middle and the bottom of the barrel for some time. In an effort to do as many home loans as possible, a few lenders have started to scrape the bottom of the barrel. American Homes however was not doing high risk loans. They were just one notch below the best loan category. This is why their bankruptcy is such a shock to people. Imagine how many bottom feeder home loan companies are in similar if not worse shape.
The Bloomberg article notes: “American Home caters to borrowers whose credit scores fall just short of standards for top-rated mortgages. The announcement provides fresh evidence that defaults may be spreading from subprime borrowers with the worst credit scores to homeowners with more reliable payment records.”
This may reflect the instability of many high paying yuppie jobs. An increasing number are being outsourced to India. The Los Angeles Times for example recently outsourced much of their writing to India. It must have been a huge shock to many L.A. Times employees, trying to pay off extremely expensive homes with almost no chance of reemployment at their old salaries. White collar layoffs are starting to bite, and white couples with two incomes who were making $200,000 a year three years ago are now trying to make it with one partner flipping burgers and a second doing temp work in an office for $8.00 an hour.
Interestingly enough, a comic sketch on Jon Stewart’s Daily Show this week may have hit very close to the mark. Stewart “interviewed” a black “expert” who joked about all these mortgage companies pitching refinances and variable rate mortgages to blacks and other minorities. “But doesn’t that mean that minorities will suffer disproportionately?” asked Stewart in mock innocence. “Hell no,” chortled the black. “We’re the ones who ain’t paying the mother—-s back!”
Basically, the “home lending industry” has started to lend billions of dollars to high-risk blacks and even some illegal alien Latinos. The chances of these people paying back their mortgage loans in full is virtually nil. Believe it or not, one Latina home loan agent sold a $700,000 house to two families including two mushroom pickers and two fruit pickers. It took only a few months for them to realize they were in a hopeless situation.
Corporate greed has won out over corporate brains in the home lending industry and were witnessing the first signs of a spectacular disaster.