Subprime crisis and credit crunch to expand, worsen

SimpleSam06

Some news from the USA here, apparently the subprimes were just the tip of the credit iceberg. Whats happening now is massive defaulting in the credit rungs above that, the Alt-A's and the prime market.

There are signs that the sub-prime collapse is, finally, beginning to stabilize: The rate at which delinquencies are rising has started to flatten, especially on pre-2007 vintages (in part because mortgages that are paid or or houses that are foreclosed on don't count). But now, says Vikas Bajaj at the NYT, a larger wave of prime and Alt-A defaults is likely to take over. If so, this will likely finish blowing many bank balance sheets to smithereens.

The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time...

While it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said.

Defaults are likely to accelerate because many homeowners’ monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks tighten their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are “alt-A” loans, many of which were made to people with good credit scores without proof of their income or assets.

Meanwhile, the US department of housing is going after predatory lending practices, tracking down those responsible for the disaster. I wonder are we going to see a similar headhunt here?