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A foreclosure storm on the horizon?

Steve Henn Aug 3, 2007


Scott Jagow: This morning, an indication of just how bad the lending fiasco has gotten: A company called American Home Mortgage will close most of its operations today and lay off almost 7,000 people.

American Home wasn’t in the subprime market — it was giving loans to people with decent credit. Obviously, the problems here are spreading. More now from Steve Henn:

Steve Henn: It’s ugly out there if you’re in the mortgage business — and it is not over.

Tom LaMalfa: I think there are going to be more large firms that fail.

Tom LaMalfa is an economist who advises mortgage companies.

LaMalfa: I almost fell out of my chair when I was going through Countywide financial statements last week.Countrywide is one of the largest mortgage companies in America. Right now, almost one-quarter of its subprime loans are delinquent — and subprime lending represents almost half of Countrywide’s total business. To me, that’s shocking — we have never seen numbers like that.

So if a series of big lenders fail, what will this mean for the economy? What happens to home buyers and homeowners with good credit who aren’t over-extended? Nothing good.

Interest rates on all types of loans are already rising. And LaMalfa expects home prices to fall by as much as 30 percent before this is all over.

LaMalfa: This is going to take a terrible toll.

LaMalfa says as the chaos in the real estate market shakes out, a recession is almost unavoidable. Have a nice day.

In Washington, I’m Steve Henn for Marketplace.

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