So it has come to this.
Two years of subprime mortgage mismanagement and lies from Washington and Wall Street has assisted and in some cases, simply lead to the demise of Bear Stearns and a total of 8 FDIC insured banks since the beginning of 2008. Like watching flies drop after spraying a room with insecticide, we will only get to a final tally of how many have died after the room has cleared up. Fannie Mae and Freddie Mac being the two biggest bugs out there.
So while we’re still counting how many banks are dropping, we are to see more loan defaults.
Individuals and families with good credit are now getting behind on their payments. Defaults on Alt-A mortgages quadrupled in April. This is what has lead to the demise of IndyMac and will certainly cause others to fail.
Alt-A mortgages are made to people with better credit than subprime. But it is still made without proof of assets or income. The banks are regulating this now but it is too little too late.
JP Morgan reported that they expect prime mortgages defaults to triple over the next months. Unfortunately, judging by how badly they have forecasted their losses recently, it would be fair to believe that their losses will be far larger.
These defaults are a lot worse for the lender because they where at one point seen as a good credit risk and a lender generally has more of them.
So what’s next? A spillover and ultimately the write off of many thousands of mortgages from subprime all the way up to those with the best credit records in the country.
The subprime part was the tip of the iceberg. Let’s just remember that this iceberg is a lot larger than the one that brought the Titanic down and is taking more people as well.