Business Blog: Hoover’s Business Insight Zone

Jumbo mortgage lender Countrywide Financial isn’t comfortable with the way things are shaping up in the mortgage market: more ordinary borrowers (i.e. not higher-risk or “subprime” borrowers) are falling behind on payments, house prices are falling across the country, debt is getting more expensive, and in general both consumers and the markets are becoming increasingly skittish about where housing is headed. The Dow Jones Industrial Average responded to Countrywide’s news yesterday with a 200-point decline. Yow.

The underlying issue to keep in mind: During the first half of this decade, we had a loooooong period of historically low interest rates at the same time that the overall economy was pretty solid. So folks would have bought more houses under any circumstances. But at the same time, some lenders — especially those who, like New Century, went whole-hog for subprime loans — began to use a slew of new and exotic means for financing mortgages. Lending standards lowered, untested types of financial instruments sprung up, home-equity lines of credit blossomed by the acre. And now the bill is coming due, literally so in the case of many householders who cannot keep up with the debt load they took on in the past few years. Housing prices may not rebound for a couple of years at least (so thinks Countrywide, anyway), so things may get worse before they get better.