The news from the front lines of the mortgage biz ain’t good. The problems are already spreading beyond subprime.
Lori Gay, president and chief executive of Los Angeles Neighborhood Housing Services, says, “we are seeing every age group, every single income level now, people with similar problems, and I haven’t seen that in my career.”
This should come as no surprise. Credit Suisse, in a recent report (thanks Bill Cara), reveals that, “the overall share of prime conventional loans has declined from an estimated 66% of total purchase dollar originations in 2002 to 45% last year… The Alt-A mortgage market has become a haven for homebuyers and investors looking for exotic mortgage products intended to mitigate the lack of affordability caused by surging home prices.”
The bottom line is conventional loans are no longer conventional. Exotics are now the norm. The majority of Americans who recently bought homes are facing dramatic payment resets that most of them cannot afford.
This pervasive and growing trouble with exotic loans could cause what Gay calls, “the biggest foreclosure bloodbath that we’ve ever had.”