Monday, October 22, 2007
It is an excellent short primer on what has happened, and, implicitly, what will transpire in the future. Rumor has it that Washington Mutual has been booking interest obligations from negative amortization mortgages as profit. Oh, you say that the problem is just adjustible rate mortgages for people in places like Florida and California? Perhaps, you should consider the following:
Gee, people who can't pay for their houses are having trouble paying for their cars, too? I never would have guessed. The credit crunch, like a virtual, spreadsheet Godzilla, has only begun to devour its victims.
US banks have raised reserves for loan losses by at least $6bn over the second quarter and by even larger amounts from last year, indicating financial executives believe consumers will be increasingly unable to make payments on a variety of loans.
Banks are adding to reserves not just for defaults on mortgages, but also on home equity loans, car loans and credit cards.
“What started out merely as a subprime problem has expanded more broadly in the mortgage space and problems are getting worse at a faster pace than many had expected,” said Michael Mayo, Deutsche Bank analyst.
“On top of this, there is an uptick in auto loan problems, which may or may not be seasonal, and there is more body language from the banks that the state of the consumer was somewhat less strong [than thought].”