I am an avid reader of the Financial Times, Saturday Edition, which seems to be all I have time for other than the internet news and Rachel Maddow. A small piece in last week’s paper spoke about the U.S. mortgage situation, not that the U.K. does not have problems of their own! In this piece, I pulled two important observations.

 

1.    The percentage of prime mortgage defaults is up rather than the sub-prime mortgages the media chats about. This means that the good people are now falling behind on their payments at a faster speed than the people who were supposedly ripped off or fibbed to get their loans. The problem is that many average people that made the right decision to buy a house and take out a decent mortgage are now behind. This is due to the higher cost of homeownership and living. Let’s face it, people and their lenders simply did not calculate for the increase in taxes, utilities and insurance. In addition, the cost of living has gone up considerably by way of food, fuel and everything else. Shall we touch on the unemployment rate reaching 10%- on the record- which means higher in reality? Thus people are broke at every level- and this goes for those across the pond too!

 

2.    The re-default rate seems to be holding steady for loan modifications. Meaning those that were given a second chance, let off the hook or allowed to lower the rate, payment or principle do are going south again. Stats (provided by the U.S. government) show that when a loan payment was lowered by 10% via modification, the re-default rate was around 23% six month later. To me, this does not sound so great. Unfortunately, I believe, that saving $200 a month will not stave off the ultimate (foreclosure) for long. As told, we are simply putting off the inevitable.

 

If putting off the inevitable will allow other parts of the economy to be repaired and allow systems to be put in place, then this is a good plan- if not, there will be another wave of foreclosures.

 

 

Dale Siegel