Foreclosure Crisis Housing Slump Deals Credit Woes To

Posted on October 29th, 2007 by saman

Wall Street’s agony due to the foreclosure crisis housing slump has affected credit to the point where two major financial institutions are feeling the pain. Bank of America Corporation announced layoffs and Merrill Lynch posted $3.4 billion more in mortgage related losses than it had anticipated just a few weeks ago. This underscores the worsening financial picture nationwide that began with the subprime mortgage foreclosure increases in late 2006.

The bad news from Merrill Lynch & Company suggests that investment banks could face more in mortgage related losses resulting from the ongoing subprime crisis that continues to sweep across America’s neighborhoods. The news released by Merrill Lynch, along with declining sales and home prices, sent the Dow Jones Industrial Average down more than 200 points before it rebounded somewhat. Merrill Lynch, who is the U.S’s largest brokerage firm, wrote off $7.9 billion of mortgage backed securities, far more than the $4.5 billion it anticipated back in early October of this year. Financial analysts from leading corporations were completely astounded at the amount of money involved in ML’s write-off.

Bank of America, has had to slash 3,000 jobs in it’s investment banking department after a 32% drop in third-quarter profits. Bof A’s stock is off 11% so far this year as well. At the same time, major daily newspapers are headlining the fact that most Americans now believe that the country is headed for a recession. In addition, 40% of the public believes that the federal government should step-in to help out people hurt by the mortgage fiasco or take frequently-discussed but never-enacted steps to prevent this from ever taking place in the future. Overall, 65% of American’s surveyed said that they felt a recession was ‘likely’; 29% felt it was not likely and 9% said they didn’t know.

It is apparent to all who care to look that the subprime mortgage foreclosure crisis that has affected millions of homeowners now has widespread financial ramifications nationwide. As of now, millions more of American homeowners are late making their monthly mortgage payments and are slipping into a delinquent status that if not cured, will result in foreclosures and the foreclosure rate (1.4%) is approaching that which occurred during the 2002 recession. Most people in this regrettable situation are subprime borrowers with adjustable rate mortgages (ARM’s) that have drastically increased their monthly payments to where they are now unaffordable.

Not every state of the union has severely-depressed statistics, but the ones that do, notably California, Florida, Nevada, Arizona, Massachusetts and Indiana, are driving down the averages for the entire US. It is clear that the losses in these key states will continue and also that they will keep driving down the national figures as well. Meanwhile, homeowners and others feeling the pinch are still waiting for promised help from federal and state governments who have still not acted.