According to MarketWatch: “American Home Mortgage said early this week its lenders have initiated margin calls as the collateral value of some of the company’s loans and securities has dropped.”
The most troubling part of the demise of the financial firm is that its loans are not primarily sub-prime. As CNNMony writes: “American Home originated $59 billion in loans last year, and mostly to people with better credit than risky subprime borrowers.” With hundreds of billions of dollars in low adjustable-rate mortgages moving to higher fixed rates, the big rouble in the mortgage markets is just beginning. Home owners will not be able to sell many homes to pay-off loans due to falling house prices and rising inventory.
If anything puts the US economy into recession next year, it will be a meltdown in middle income mortgage defaults.
Douglas A. McIntyre