The US treasury secretary has warned some banks will still fail despite the $700bn government rescue package to shore up the financial system.
Source:BBC News.
Many of the banks that have already failed or have been bought out were those that specialized in the most risky of all mortgages, Option ARM mortgages.
The financial industry shake out started with the most risky lenders and will now move on to less risky lenders.
Any bank that made a lot of mortgage loans in 2005 and 2006 would seem to be in real jeopardy even if they weren’t selling option ARM’s or other crazy risky loans.
The median home price in metro Phoenix has fallen 34% from the peak. The median home price at the peak was about $260,000. Now, it’s about $190,000.
I don’t see how many of those 2005 and 2006 lenders can survive. Were the lenders making so much money that they could lose on average many tens of thousands of dollars on every foreclosure and still survive?
It’s going to take a lot of checking account overdraft fees to cover one of those foreclosures.
And, oh yeah, home prices are still headed down.
Many lenders who made mortgage loans in 2005 and 2006 will go out of business over the next couple of years.
Nevertheless, I believe that once home prices bottom out, new lenders will appear like magic to lend money to Arizona home buyers.