Thursday, August 21, 2008

The Debts of the Spenders: Sub-Prime is Ending...but Others Appearing on the Horizon

Subprime issues may be ending, but Alt-A and Prime Option Arms do not begin resetting until 2009 and will last through 2011. Although the total number of loans expected to go delinquent in this area are a lot less as a percentage of the total number of loans written when compared to subprime, the total value of these loans are significantly greater. Factor in the decline in home prices affecting a $500K loan vs. a $250,000 loan and the banks hit it twice as large. It's one thing for a seller to be under water by 5$0K, but it's another to be under by $100K+. Additionally, the banks will have a much harder time selling these non-performing assets as the credit crunch has made it virtually impossible for a potential buyer to secure a new prime loan.


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