Money and Markets: The Mortgage Virus is Spreading

Jupiter, FL (PRWEB) December 12, 2007 -- Martin D. Weiss, Ph.D. examines the U.S. economy and consumer spending. Dr. Weiss takes a closer look at what is going on in the mortgage sector and how it's affecting the U.S. economy.

For years, Americans borrowed like there was no tomorrow, piling up the biggest mountain of mortgages and consumer debt, with the smallest savings of any modern society in history. Now, credit standards for mortgages have tightened. With rare exceptions, getting one is now more difficult, more expensive, or both.

And with equal suddenness, the mortgage virus is spreading to virtually every other form of credit, including:

?    Auto loan delinquencies have surged to the highest level in several years. Lenders are tightening terms. And despite the Fed's rate cutting, auto loan rates have actually been moving higher. Even auto loans made to top-rated borrowers are going bad: In August, 2.9% were past due by 30 days or more. Just one month later, that delinquency rate had surged by 55% to 4.5%.

?    Among subprime borrowers, a whopping 12% were behind in their auto loan payments.

?    Construction loans have suffered a similar fate. Just in the last year, the percentage of loans 30 days past due has more than tripled, while the percentage considered nonperforming has risen by more than five times.

?    Corporate credit is beginning to disappear, especially for speculative grade borrowers.

That's assuming the U.S. economy gets by with just a slowdown, no recession. If there is a recession, says Kenneth Emery, director of corporate default research at Moody's, the default rate could be closer to 10%, or ten times recent levels.

Already, many companies are running into the same problem as average homeowners, no refinancing available. And for the first time in history, Moody's has signaled its readiness to downgrade one of the nation's leading bond insurance companies due to massive losses in the mortgage-backed securities it covers.

Moody's expects the dramatic increase in defaults on high-risk subprime home loans to use up so much of the insurer's cash that it will be unable to make good all the payments required on some of the mortgage bonds it insures.

And even the home price decline still has a long way to go. Back in April 2006, the median price of a new home reached a temporary peak of $257,000 and then declined to a temporary bottom of $226,700 in September. At the time, this raised some concerns, but prices promptly bounced back and made a new high of $262,600 in March of this year.

"And that's when the price decline began in earnest to $242,500 in April, $235,500 in June and now $217,800 in October, well below its 2006 low. Remember that putting money in the hands of bankers is one thing. Persuading them to lend it out in this high-risk environment is another entirely," Dr. Weiss states.

To read this issue online, please visit:

http://www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=1259

About MARTIN D. WEISS & MONEY AND MARKETS     

Martin D. Weiss, Ph.D., founder and president of Weiss Research, Inc. and a leading advocate for investor safety, is a nationally recognized expert on domestic and international financial markets. With more than 35 years of experience, including many years in Latin America and Asia, Dr. Weiss has helped empower millions of investors to make better financial decisions through his monthly Safe Money Report and daily Money and Markets.

Dr. Weiss' keen understanding of foreign markets and the global economy has earned him a reputation for thoughtful, in-depth analysis that investors can rely upon to make informed financial decisions. Regularly called upon by the media for his independent investing guidance, he has been featured in publications nationwide, including The Wall Street Journal, The New York Times, Chicago Tribune, Investor's Business Daily, and Forbes and has also appeared on CNN and CNBC.

Throughout his career, Dr. Weiss has been an advocate for consumers and investors in the insurance, banking and brokerage industries, dedicating his time and resources providing analysis and data for Congressional testimony, constructive proposals for reforms in the securities industry and legislation for full financial disclosure as well sound accounting and fiscal policy. In November 2004, he launched the Sound Dollar Committee, a nonprofit organization dedicated to building a network of investors seeking to protect the nation's future by demanding honesty in government accounting, a balanced budget and sound economic policy.

Dr. Weiss is author of The New York Times best-seller, The Ultimate Safe Money Guide, which gave baby boomers a road map to grow their wealth safely. It was listed on the New York Times Business, Wall Street Journal, and BusinessWeek best-seller lists, as well as the Barron's Roundup for 2002.

Dr. Weiss holds a bachelor's degree from New York University, a Ph.D. from Columbia University and is fluent in eight European and Asian languages.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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