Tuesday, February 12, 2008

Nobody Could Have Predicted

It's been months and finally it's sinking in that the "subprime problem" had little to do with "subprime" and was instead simply about lax lending standards in a bubble market, across the board.

The credit crisis is no longer just a subprime mortgage problem.

As home prices fall and banks tighten lending standards, people with good, or prime, credit histories are falling behind on their payments for home loans, auto loans and credit cards at a quickening pace, according to industry data and economists.

Isolating this as a "subprime" problem was a way of marginalizing the victims (not all were victims, of course) as foolish people with bad credit.

But this is a problem which is hitting people across the board. Those million dollar homes don't buy themselves.

Here's a taste of the kind of bullshit mortgage brokers pulled:

But she knows she will not be able to pay the $3,400 needed to cover her interest and principal, which she will be required to pay once her loan balance reaches 115 percent of her starting balance. And under the terms of her loan, which was made by Countrywide Financial, she would have to pay a prepayment penalty of about $40,000 if she chose to refinance or sell her home before May 2009.

She said that she now wishes she had taken a traditional fixed-rate loan when she bought the home. At the time, she asked for a loan that could be refinanced after one year without penalty. She said her broker had told her a week before the closing that the penalty would extend until May 2009 and that she reluctantly agreed because she had already started moving.

Remember that "subprime" is simply a category of borrower and the real issue is the crazy awful loan terms which were handed out to people with all credit ratings.