FROM THE SUBPRIME TO PRIME AND RIDICULOUS
The Sacramento Bee reported some ominous statistics on the state of the mortgage industry:
The mortgage meltdown is continuing on from the “risky,” “exotic” subprime that had variable interest rates. As the State and Capitol area economy continues its decline, howeowners with fixed mortgages are getting into trouble.
The Bee reported that capitol-area job losses approached 5,000 in the past year and unemployment at 11.1 percent. Various financial industry consults, lenders, bankruptcy attorneys, and debt counselors all say they’re seeing rising delinquencies among prime borrowers with fixed-rate loans and good credit. Many of those slipping into trouble are state workers, the one of the mainstays sof Sacramento’s economy. Not coincidentally, the State Budget stalemate continues. So as the State Legislatures fight amongst themselves to satisfy the needs of their own particular interest groups, and the State has now gone to three furlough days a month and started issuing IOUs, its not coincidental that the economic woes continue to grow.
More workers with “steady jobs” are experiencing a loss of income. As a result, they have less money to spend at local businesses, restaurants, and on the fundamental necessities of living.According to the Mortgage Bankrers Association (MBA), there are 3.3 million “prime” loans in California, totaling 56% of all mortgages. But nearly 4 percent were delinquent in the first quarter, and that number will only continue to rise. Significantly, that number was less than 1 percent two years ago, when the default crisis was dominated by subprime loans.
The MBA says layoffs are now hitting more educated borrowers. For private sector and state workers, it’s not just the layoffs creating trouble for traditionally safe loans. Many area workers have had to absorb wage cuts. Others who lost jobs have been lucky to find new jobs usually find emploment that pays less. Or they have found only part-time work. Many workers who depend on overtime pay have also seen it disappear or dwindle. As the economy has slowed those who usually counted on bonuses for performance based sales are seeing their incomes slashed.
Finally, in a capital region defined by a massive state government work force, furloughs have grown to three days monthly, approximating a 14 percent salary cut. Those who were barely scraping by and living but living within their means are now at risk of financial disaster. Governor Schwarzenneger is proposing still more pay cuts for an educated population that’s increasingly showing up at nonprofit mortgage counseling centers. People who planned their lives around safe, secure jobs are finding their is no such thing as job security after all.
The Bee also reported that this upheaval has had a ripple effect on small-business owners. The thinking that this is a “short term set-back” seems to the Vanity of Human Wishes, because with the State’s budgetary process at a standstill, small business owners and those in the private sector and feeling the pinch of the lack of response by the Legislature to solving California’s budgetary problems. With the not so unforeseeable consequences of the State’s budgetary problems, having an increasing impact on all of California, legislators still are collecting their full paychecks, despite a California Constitutional Amendment requiring a balanced budget.
The mortgage meltdown has already claimed 40,000 area foreclosure victims and heartbreak in thousands of other homes, trouble for prime borrowers is one more obstacle to a
housing recovery any time soon.
But the news gets worse: Borrowers seeking loan mods with recalcitrant lenders are going to have an even more difficult time, simply because lenders are going to be able to restructure loans for underemployed or jobless people who can barely afford any payment and still buy groceries. Economists say rising defaults and the foreclosures to come among these borrowers are likely to persist long after unemployment peaks sometime next year.
Forecasters at the University of the Pacific in Stockton predict unemployment in the capital region will peak late next year at a whopping 12.3 percent – and remain in double digits through 2011. If so, problems with prime loans are likely to linger in a region having difficult times.
The Federal Stimulus Package is obviously not working, and the State Legislature needs to act instead of waiting for a Federal Bailout. Since the Legislature has not complied with the requirement of balancing the budget, they should not be receiving their paychecks. In fact, it might be more beneficial if the entire legislature was recalled and replaced with a non-partisan sixth grade government students, who are not influenced by private interest groups, unions, or political ideology. The next initiative on the California ballot should be a measure to return the legislature to part time status, and to remove the influence of private interests. California’s legislature has manifestly demonstrated that they are incapable of acting in the best interests of the State of California, and instead have only shown an obdurate insistence in serving whatever political interest group they represent.
For the bankruptcy lawyers, it will be boom times. For private citizens, including those who work in the private sector, and those who work for the state, their own private economies are not likely to improve very soon.