Giant Failures Await

Home values plummet Inside the offices of Countrywide Mortgage the signs illuminated their offices reading, “Fast and Easy Loans.” The notices beckoned any mortgage applicant to ask just what these loans were all about.

The so-called Fast and Easy Loans offered by Countrywide and dozens of other mortgage lenders and banks throughout the country, which often gained chuckles from employees, were a new version of mortgages, originally developed for the self-employed that did not require proof of income or verification of employment. This new version of mortgages and other adjustable rate subprime and Alternative “A” mortgages made to homeowners and investors are at the heart of America’s real estate crisis.

Countrywide has all but closed its door in a take over by Bank of America, which has announced that Countrywide Mortgage would be absorbed by the mightier B of A. Holders of Countrywide Fast and Easy mortgages and Alternative “A” mortgages are defaulting at the fastest rate ever known in the lending industry.

The Federal Deposit Insurance Corporation has a watch-list with some 150 institutions they are monitoring in case of failure. Banking analysts believe the list is much longer, citing the likelihood of at least 250 lenders. The number dwarfs the number of Savings and Loans that failed throughout the nation during the Savings and Loan Crisis in 1980’s and early 90’s, which saw more than 1,000 S&L’s go belly up. But the amount of debt taken on by the companies involved in the nation’s mortgage crisis may be more than triple S&L losses, much of it supported by Fannie Mae and Freddie Mac.

Foreclosures have already topped the number suffered in the days of the Savings and Loan Crisis, recently topping 3-million. But millions of more foreclosures are forecast as a result of a future series of adjustable rate mortgages resetting and falling real estate values. More and more homeowners are choosing to walk away from their mortgages rather than pay. Foreclosures in some particularly hard hit neighborhoods reach as high as 1 in 15 homes.

It turns out the “Fast and Easy Loans” were too good of a marketing ploy as the nation comes to grips with the financial crisis that has resulted across the broad economy. But this crisis has little resemblance to the S&L crisis. A series of additional troubles plague the nation, including higher gas prices, utility bills, escalating grocery prices and higher unemployment.

Economists describe it as the “Perfect Storm.” Food stamp applications have risen to the highest levels since the 1960’s. Job applications to dozens of employers surveyed have more than doubled. The chief components of inflation for most people, food prices and gasoline may have topped 30% inflation in the last year alone. The economy was more stable during the S&L years.

As the nation’s mortgage crisis expands to rock more markets throughout the nation, the new plan Congress has offered up is expected to help another 300,000 threatened by foreclosure, a fraction of those effected. Seven banks have already been taken over by the FDIC and more are expected. The epidemic of foreclosures now threatens at least one out of ten homeowners.