L.A. Times: Sub-prime lending shakeout heats up - "Think how that's going to ripple through the economy, it could really affect home prices"
This February 28 story by E. Scott Reckard discusses the continuing trials and tribulations of sub-prime lenders. Freddie Mac is tightening its standards and refusing to buy "foreclosure-prone" loans. Ameriquest is looking for a buyer or potential partner, exploring "strategic alternatives". Santa Monica's Fremont General Corp said on Tuesday it was delaying the release its 4th quarter financial results. We already know about Irvine's New Century Financial, which has stated heavy losses, and we know that Ownit Mortgage of Agoura Hills has filed for bankruptcy protection. Other mortgage companies, like Countrywide, have been announcing layoffs.
The music has stopped for serial refinancers and they are now stuck with payments that are likely to explode upwards. Some analysts fear that the toxic effect of the sub-prime market will spill into the prime market and perversely damage the economy. (Economist Nouriel Roubini has recently posted about the possible contamination.)
Layoffs in the mortgage industry have been affecting the employment picture in Southern California, too. There was a net loss of jobs last summer for the first time since mid-2000. The mortgage industry had been a "major growth engine" in Orange County and is now a "big drag" on growth.
It still continues to amaze me that even though there are economists and financial analysts out there who see the handwriting on the wall, we have yet to see a discussion in the newspapers of a potential for severe price declines.