BluefoxToday blog : Subprime meltdown overblown?

Subprime meltdown overblown?

How serious is it? It might actually be less of a problem than previously believed. A Federal Reserve Governor estimates that ARMs, in the eye of the storm, make up only about 8% of the entire home loan market. Relatively small number. Here's a bigger number. In some calculations the lenders could suffer $300 billion or more in losses. But, that's minor when we remember that the recent tech bust ate up around $9 trillion in corporate equity. So, is it more hype than anything else?

It could possibly still get uglier, yes, but nevertheless I'm beginning to consider it merely a correction. As long as it affects only 8% of the whole market, that's all it is. An adjustment. The most aggressive lenders of the past will be either bought out or eliminated through bankruptcy. And the rest will redraw their underwriting guidelines and accept the fact that there are dire perils should you get too hungry.

How did it become such a huge issue? The media and some interest groups certainly jumped on the story with guns blazing and molded it into a major event. That has enticed the politicos in Washington to hold hearings to earn points for their careers. I guess what also fanned the flame was all the earlier talk about the real estate bubble and the mortgage report was easy to tie into that. More or less a continuation of the same. Trouble in the real estate market.


Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 4 commentsEsko Kiuru • March 30 2007 10:19PM



I wouldn't say it's overblown, since there are a lot of people hurting due to this crisis. However, they media has definitely hyped it up a bit. I posted a numerical analysis of the real impact of the subprime meltdown here. Check it out.



Posted by Aimee Ghimire (Phoenix Home Loan Expert ( almost 13 years ago
Not only is it limited to a fraction of the market, it is limited to a fraction of that fraction, 12-13%.  This has happened before, not on this scale but it has happened before and it will again.  And the argument that it isn't overblown because people are hurting holds no water.  There are always people hurting for one reason or another and in this case it is mostly self inflicted.
Posted by Randal Keberlein (Weichert Realtors, Precision) almost 13 years ago
I agree with you Esko.  At first I was a bit scared about the Las Vegas market and how many tipped workers will need the stated subprime product.  I started tracking as pendings went up in early Feb right before the meltdown. Pendings have actually held steady much to my surprise!  We are also seeing some decent market movement in the SFR entry level resale market since standing inventory has gone by the wayside.  I hope this effect will trickle in all of the other areas of our market!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) almost 13 years ago

Thanks for your comments. The human cost is very unfortunate. If I could bring up another point from a different angle.

A recent survey discovered that 34% of homeowners don't know what kind of a mortgage they have. That's a high number. For most people a mortgage is the single largest debt they'll ever have. A serious issue. Shouldn't they know at least the basics of that financial document? When you sign up for a home loan you agree to its terms, one of which is that you'll pay it back, and with that signature comes a responsibility. It appears that many just miss that. Or ignore it. Either way, the end result can be damaging.

Our industry has its share of dishonest members and they should be weeded out. Still, when you take on a major financial obligation like this, doing your homework is essential. If in doubt, call on a competent mortgage professional. It's well worth it.

Posted by Esko Kiuru almost 13 years ago