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Is Subprime the New Y2K?

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March 12, 2007 – Comments (4)

Here's an interesting opinion on the subprime shakeout.

 

I tend to agree with what he has to say. To some extent. Unfortunately, the subprime market isn't coming apart in a vacuum. Loan defualts are putting foreclosed housing onto an already weak market, stricter underwriting guidelines are taking potential buyers out of the market, and uncertainty over where the market is going is keeping others out. A continued drop in demand in the housing market could lead to declining prices which could cascade into lower consumer confidence, lower consumer spending, and lower corporate investment.

 

I'd like to skip all that messiness if possible, but I think there's certainly the potential for the subprime mess to have a wider reach than some may think. 

4 Comments – Post Your Own

#1) On March 12, 2007 at 10:45 PM, devoish (98.37) wrote:

The writer refers to the sub-prime mortgage market as 3.2 million loans. Is that something seperate from sub-prime refinancing loans? Or are refinancing loans included?

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#2) On March 13, 2007 at 1:29 AM, fOOLSONPARADE (92.96) wrote:

There is a lot more to it than the  sub-prime loans.  It is just a very vulnerable  piece of the pie.

There are lots and lots of people who refinanced.  They had average to good credit.  They took the money and went crazy with remodeling, buying boats, hummers, trips, etc. The one thing they did not do is pay off the pre-exisiting credit card debt they had.  Now they have 2-5X the debt they previously had.  So what?

Well, do you think consumer spending will remain strong?  Not likely

What about cost of living going up?  Will more defaults occur? Most likely

What about ARM mortgages adjusting and interest only loans?  Many people with average to good credit are in ARM loans or interest only loans while they tried to "flip" the house for a profit and are now stuck in it.  They might not go bankrupt, although some will, but do you think they will be spending like they were.  Not likely.

 The sub-prime is the first to go because it is the weakest link.  The higher up the less weakness but that is not the next concern. The next concern is the housing market deceleration and drain on housing-industry related jobs and on consumer spending.

Or at least that is my opinion.

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#3) On March 13, 2007 at 3:38 AM, TMFKopp (98.25) wrote:

Good question - I would assume that the number excludes refi's

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#4) On March 13, 2007 at 3:40 AM, TMFKopp (98.25) wrote:

Of course if you buy this, then we'd assume that any blow-up in the subprime market would have a muted effect on consumer spending...

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