These people aren’t in trouble because of the terms of their loans; they’re in trouble because their income isn’t sufficient in relation to the amount of money they borrowed.
It might be appealing to think that the gov’t and Wall Street can work together to come up with “new tools” to apply to this problem but the simple fact of it is that these tools all have costs. They can’t be effective in a situation where a borrower owes more than they can pay. These investors have money out on the street and they require return of and on investment capital. They might forego getting the return on their investment, but they cannot forego getting the return of their capital and there’s no reason to think they should.
This end of the cycle is just starting in the metro markets across the nation. While not all the markets are overextended, there are enough of the metro markets that are to make these finger-in-dyke proposals pointless.
Locally, there are still a lot of problems with the intertwined trends of the declining prices and the demise of mortgage-capable employment. Let’s be real here, the creation of retail jobs down at the mall isn’t a substitute for the RE dependent jobs that are vanishing every week. Service jobs can’t pay these mortgages even at the teaser rate.
It’s a trend and we’re just a few months way from that trend taking on a life of its own. At that point it won’t matter what jobs are in town because the market psychology will drive the pricing all by itself. Irrational exuberance has an evil twin and we’re about to meet it (again).
