I confess to not having the highest opinion of the Wall Street crew, but look at what the WSJ said about thinking among analysts of the mortgage market: "The question now is: Even though the delinquency rates are climbing, will the loans follow the same path as in previous years? In 2000 and 2001, for instance, the growth in the 60-day delinquency rate slowed when those subprime loans were about three years old and peaked after a little more than four years, then started to fall." Get me a baseball bat, I've got to beat some sense into these people's heads. If you go 3 years out from 2000 or 2001, home prices had appreciated by close to 30 percent as a nationwide average. In many of the big subprime markets, home prices had close to doubled. When the price of a home doubles, homeowners accumulate equity -- lots of it. If a homeowner has equity, they don't default on a mortgage. They either borrow against their equity or they sell the home and put money in their pocket. Contrast that situation with the present. Home prices are now down nationwide by close to 10 percent from their year ago levels. In many of the big subprime markets they are down by more than 20 percent. Furthermore, prices are falling rapidly. In another year or two years, most recent homebuyers in these markets will still have negative equity and possibly a lot of negative equity. Now do we think that default patterns three years out on mortgages issued in 2000 will look like default patterns three years out on mortgages issued in 2006? Is there anyone really stupid enough to ask this question who is actually employed and paid money by a financial institution? If so, that is an unbelievable scandal. The media should find out if anyone who is so completely out to lunch is in a position of responsibility and run a front page article on the astounding incompetence of high-paid people in finance.
--Dean Baker
