The US economy is poised to be smacked by another wave of mortgage defaults that could cause as much damage as the subprime meltdown.
According to Credit Suisse, $1,000bn (£694bn, €772bn) of Alt-A and Option ARM mortgages – the dubious loans used to propel home sales through the final years of the housing bubble – are scheduled to have their interest rates reset from now through to summer of 2011.
RE: Small Business, The Housing Market, Foreclosures, and Job Loss:
ReplyDeleteIt is a tragedy when an individual borrower defaults on the mortgage and loses his/her home. The tragedy is magnified when the borrower is a small business owner, employing from 1 to 10 employees. The loss of jobs related to mortgage defaults and the resulting business failures will further weaken our economy and prolong the recession.
On December 14, 2008, CBS’s “60 Minutes” had a segment on the 2nd Wave of Foreclosures. CBS indicated that experts were expecting another wave of mortgage defaults on ALT-A and Option ARMs mortgages which will dwarf the Subprime Mortgage Crisis. CBS MISSED A VERY IMPORTANT FACT!
Many fail to realize that there are millions of self-employed smaller businesses that are holding these “toxic” mortgages that are going to reset in 2009 through 2012. These borrowers are Prime and Near-Prime borrowers who hold ALT-A, Option ARMs, Interest-Only mortgages. There are $1 Trillion ALT-As, and $500-600 Billion Option ARMs.
So, here we have a major problem… Not only will these small business owners lose their homes, but there will be the resulting JOB LOSSES on their business failure. Although President Obama is stressing the need to create 3 million new jobs, we must understand that “JOB RETENTION IS AS IMPORTANT AS JOB CREATION”.
I authored a survey which was conducted by the National Association for the Self-Employed (NASE) to its national membership. The NASE survey is at
http://advocacy.nase.org/research.asp
See the NASE News for the Survey on Toxic Mortgages. Please read my Commentary.
According to this survey, it is estimated that 3,709,800 small business owners hold Alt-A and other “toxic” mortgages. Of this number, 3 million are “very worried” about their ability to make the monthly payment due at “reset” , and 1,279,800 are already delinquent as they have missed one to three or more monthly mortgage payments at mid-November, before the expected “Resets” that are scheduled to begin in 4th Quarter 2008 through 2012.
The solution lies in the hands of Congress as they meet in January to structure an Economic Stimulus package. Congress should take note of this survey and be “proactive” in addressing the situation, rather than “reactive” as the case has been in the Subprime Mortgage Crisis.
We can’t afford another shock to our economic system at this time. This 2nd Wave of Foreclosures which will be caused by the ALT-A and Option ARMs will not only result in Foreclosures, but also Job Loss.