"The subprime mortgage meltdown has begun to spread to prime loans as even credit-worthy borrowers have started to fall behind on payments."
"'Unable to afford their own homes, [borrowers] turned to increasingly risky mortgage products,' said Amy Klobuchar, a member of the House of Representatives from Minnesota, speaking Wednesday before a hearing of the Joint Economic Committee examining the national foreclosure crisis."
"Some home buyers, caught up in red-hot markets and afraid of getting locked out of homeownership forever, overpaid for houses."
Home prices rose so high in the early part of this decade, that most people couldn't afford a traditional 30 year mortgage. Well, I guess they couldn't really afford non-traditional mortgages either.
The inability to live within your means and to recognize the limits of your means is going to make a relatively small problem (subprime defaults), a very big problem. This is the kind of widespread problem that could wipe out the middle class in this country: going into a loan based on highly inflated property values that then begin to deflate. As mortgage rates reset, more and more families will find themselves upside down in terms of property values versus loan balance. That will not be easy for the economy to iron out.
But wait, there's more:
"Analysts said the trend could continue, particularly in areas of the country that have been hardest hit by job losses in general or seen a decline in speculation-driven construction, such as South Florida, parts of California and Las Vegas."Job loss? Rising mortgage payments? Rising energy costs? Rising food costs? This doesn't sound very good, considering consumerism accounts for over two-thirds of our economy.
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