Mortgage News
Mortgages

Economic Recovery: Reality or Illusion?

Sept 21, 2009 - Last week the US Treasury Department announced the financial system had stabilized and its emergency phase had now ended.  Priorities for Treasury were now shifting away from a rescue phase onto a rebuilding phase.  While the worst of the financial bombshells may have hit, the crisis cannot be proclaimed as “over” for there are too many minefields left to navigate.   Where some improvements have been realized within the economy, it remains unclear whether the gains achieved could actually continue without the government's direct intervention, as government spending has been a key driver of this alleged recovery.  It is very unlikely for any type of sustained recovery to take place unless consumer spending replaces that of government spending.  Unfortunately it has been consumer spending which accounts for a whopping 70% of our nation's gross domestic product (GDP).

With credit conditions being squeezed from every direction and incomes declining as job losses are mounting, it does not seem likely that consumers will return to their care-free spending habits any time soon.  Recent corporate earnings reports show that revenue appears to be in a free-fall and companies will continue to slash labor costs and sacrifice jobs in order to stay afloat.  The so-called “job-less recovery” which may have been possible in previous downturns seems unlikely to gather much steam this time around due to the absence of non-wage related cash resources available to consumers.  Home equity lines are being cut back as home values fall and banks attempt to reduce their liabilities.  Other non-secured credit lines are being pulled back too, such as credit cards.  The consumer is now severely handicapped in their access to disposable or spend-able cash flow.  

The total level of delinquent and currently foreclosed upon homes is upwards of 13% and climbing.  In the beginning of the foreclosure crisis, sub-prime loans were the primary culprits, now with job losses rising, prime loans are being hit.  The prime mortgage market, which accounts for 2/3rds of all loans, is experiencing surging delinquency rates and now accounts 1 out of every 3 foreclosures.  Still to come is another phase of adjustable rate mortgage re-sets which will begin in the 4th quarter of 2009 and will continue into 2010.  Typically, these adjustable rate re-sets have been followed by yet more defaults and foreclosures. 

Compounding the problem further is the drop in home values which had previously provided consumers with their source confidence and cash.  It is estimated that over 25% of homeowners owe more on their homes than they are worth and it is expected that as delinquencies and foreclosure continue to rise, and flood the market with an added supply of available homes, another 15% drop could occur resulting in the unthinkable, that almost half of all US homeowners could owe more on their homes than they are worth.

This certainly appears to have the makings of a smoke and mirrors recovery that will fade away once the government backs off of its deficit-exploding spending.  There is little good news to cheer about yet so be leery of talk that we have turned a corner because we still don't know what lurks around the next one.  Potential impending disasters on the horizon commercial loans, losses at FHA and more funding needed to backstop the FDIC. 


Nancy Osborne, ERATE.com Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.

"I am addicted to Bloomberg TV" says Nancy.

Other Articles:

Hanley Wood announces hottest housing markets for 2010

Mortgage Rates Continue Their Steady Decline

Refinance Program Expands, Covers More Borrowers in Trouble

Foreclosures Rise, along with Borrowers Helped by Refinance Program

 

 

Fannie Mae & Jumbo Mortgage Rates

Just One Click! = Current Rate Chart

Pennsylvania Mortgage Rates Current Mortgage Rates - Hawaii Current Mortgage Rates - Alaska West Virginia Mortgage Rates Virginia Mortgage Rates District of Columbia Mortgage Rates Maryland Mortgage Rates Delaware Mortgage Rates New Jersey Mortgage Rates Connecticut Mortgage Rates Rhode Island Mortgage Rates Massachusetts Mortgage Rates New Hampshire Mortgage Rates Vermont Mortgage Rates New Hampshire Mortgage Rates Maine Current Mortgage Rates Vermont Mortgage Rates Current Mortgage Rates - New York Current Mortgage Rates - Michigan Current Interest Rates - Wisconsin Current Mortgage Rates - MINNESOTA Ohio Mortgage Rates Current Mortgage Rates - Kentucky Current Mortgage Rates - Indiana Illinois - Current Mortgage Rates Current Mortgage Rates - Iowa Missouri Mortgage Rates Current Mortgage Rates - North Carolina South Carolina Mortgage Rates Current Mortgage Rates - Florida Current Mortgage Rates - Georgia Current Mortgage Rates - Tennessee Current Mortgage Rates - Alabama Current Mortgage Rates - Mississippi Current Mortgage Rates - Louisiana Current Mortgage Rates - Arkansas Current Mortgage Rates - Oklahoma Current Mortgage Rates - TEXAS Current Mortgage Rates - New Mexico Current Mortgage Rates - Arizona Current Mortgage Rates - Kansas Current Mortgage Rates - Nebraska Current Mortgage Rates - Colorado Current Mortgage Rates - Wyoming South Dakota Mortgage Rates Current Mortgage Rates - North Dakota Current Rates - Montana Idaho Current Rates Washington Mortgage Rates Current Mortgage Rates - Oregon Current Mortgage Rates - Utah Current Mortgage Rates - Nevada Current Mortgage Rates - California

Start by selecting your state






Get the Updated and Improved Mortgage Rates App from ERATE.com

iPad for Mortgage Rates

Foreclosure