March 15, 2007
-- by Dave Johnson
Former Federal Reserve Chairman Alan Greenspan said on Thursday there was a risk that rising defaults in subprime mortgage markets could spill over into other economic sectors.Duh! You take away a big percentage of buyers by tightening the rules about who can get a mortgage at the very same time as inventory is rising, and OF COURSE prices have to fall. DUH!
Speaking to the Futures Industry Association, Greenspan conceded it was "hard to find any such evidence" about spillover from housing yet, but added: "You can't take 10 percent out of mortgage originations without some impact."
He said that subprime woes were "not a small issue" and seemed to result primarily from buyers coming into lofty housing markets late after big price run-ups that had left them vulnerable to hikes in adjustable mortgage rates.And the good news?
Default rates in the subprime segment of the U.S. mortgage market have jumped in recent months as the housing industry slowed and prices fell.
At least 20 lenders in the subprime mortgage sector, which serves borrowers with poor credit histories at high interest rates, have gone out of business as a result.
The crisis has triggered broader concerns that the fallout may spread to mainstream lenders and damage the economy.
He also noted the problem would be quickly resolved if the housing sector regained its footing and prices moved up by 10 percent.Right. Prices at the highest ever, fewer buyers, high inventory, and things will be fine IF prices go up. OF COURSE they'll be fine if prices go up. But at the top of a bubble it's ALWAYS fine if prices go up. But they won't.
The situation in Iraq would be fine if Shiites and Sunnis gave each other a big hug, too. But they won't.
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