BY Jack Lee
Another round of home foreclosures is about to hit us and banks are bracing for what could be the most costly defaults to date. These are the upper end prime jumbo-loans that average around $750,000 each. Jobless rates now finding their way into the upper middle class and right along with those job losses are some very high dollar home foreclosures.
Jumbo loans that were 90 days behind as of Dec. 08 was over double what it was last year. Some of these loans can run as high as a million dollars or more and this is yet another financial disaster in the making for cash starved banks that are barely hanging on.
As a result of the housing implosion, Moodys has downgraded 75% of prime jumbo loans that were once triple A rated and this has left investors, and banks that hold their own paper, feeling extremely exposed and nervous. And rightly so, we could see 1 in 4 home loans made in the last 3 years go into default soon.
Chase Home Financial, Washington Mutual, both part of J P Morgan Chase, made 25% of the total prime jumbo loans and they are in serious trouble now. Bank of America was not far behind, they made nearly 11% of the total loans on sub-prime jumbos. B of A stock fell 8.25% today on investors concerns over this high exposure. J.P. Morgan was also off over 8%. WaMu was sold off months ago as their loans imploded.
The nationwide falling home prices are not likely to find a bottom anytime soon. The bubble in home prices was artificial from the start. It was all built on speculation and borrowed money (mostly sub-prime loans).
So, if you’re hoping home prices will recover in the next year or two to at least match your mortgage balance youre out of luck. It could be 6-10 years before that happens. The high home prices from 2 and 3 years ago were inflated well beyond supportable value. Now the law of economics will determine what home prices are, not reckless lending practices and foolish buyers hoping to turn a fast buck on overly inflated properties.
California has been one of the worst states for mortgage defaults because of the unusually high percentage of homeowners that now owe far more than their homes are worth. However, California is a no-fault state and this little technicality passed by democrats a few years back allows homeowners to simply walk away from their mortgages without fear of facing a deficiency balance and then banks and lenders must absorb the loss.
Hope you don’t own any Bank of America stock…this plus the Merrill Lynch fiasco could put them over the edge!