Sunday, September 21, 2008

Mortgage Crisis?

I don't watch boring news shows like Meet The Press very often, but this week Treasury Secretary Henry Paulson was on and I wanted to hear what he had to say about how this country got into this so called mortgage crisis, and more about the plan to fix the situation. Japan was in a similar position about twenty years ago, but their government was slow to react and they still haven't fully recovered. I have to give Paulson credit for proposing a solution, even if the price tag is huge, as he said, doing nothing would be much worse.

I also read a good article today in USA Weekend which discussed the number of people in this country who own homes, but don't have a mortgage. It turns out that almost one-third of Americans don't carry mortgages on their homes. Thinking about this further, I wonder how many defaulted mortgages it would take to cause this much trouble. If there are about 50 million mortgages and 10 percent are in default, that would be 5 million mortgages in default. If the average price per home is $150 thousand, the value of the property in default would be 750 billion. Since these properties probably have 30 year loans at 6 or 7 percent, you need to add another 1.8 trillion for interest. Anyway, you can see how a low percentage of defaulted loans overall, can cause a huge amount of unpaid debt.

I often wonder what happened to all these people who were unable to pay their mortgages. They have to live somewhere. Next we will be hearing about the population of homeless people going up in cities across America. I suspect we will be discussing and dissecting the causes and impact of this latest financial crisis for years to come.

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