Things are never as we expect. Who would have imagined that people would just walk away from the overvalued homes. No wonder the ratings agency models have had nervous breakdowns.
Fitch Ratings, while telling investors last Friday to expect additional "widespread and significant downgrades" on $139 billion worth of subprime loans, has cited a new factor in their "worsening performance."
"The apparent willingness of borrowers to 'walk away' from mortgage debt," the analysts noted, "has contributed to extraordinary high levels of early default" on loans issued during the 18 months before the mortgage bubble burst. It expects losses to reach 21% of initial loan balances for subprime mortgages issued in 2006 and 26% for those issued in early 2007.
Such behavior, where not precipitated by willful fraud, shows that American homebuyers supposedly duped by their lenders aren't so dumb. They're perfectly capable of acting rationally without political interference.
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1 comments:
Anonymous said...
What happened in American culture, practically unheard of in other countries, is that people treat their homes as so much throw-away gadgets.
Everybody wants 'equity' but nobody wants to pay for it. People don't even understand what equity is. For so long, a house is just an instrument to extract cash out of debt. This is, of course, insane because it works only when fake value keep going up faster than real debt. A culture of utter fantasy.
Those who can't make payments now walks. I wonder to where. To another fantasy land?
With this irresponsible culture of debt, I predict banks will no longer offer mortgages, builders won't build any more houses. They are not fools you know. Let the walkers walk straight into hotels and see what happen if they don't pay.