Mapping California's Subprime Lending Bust

Those of you who live in California's Central Valley or drive through there on the 99 freeway can surely appreciate the impact that the unraveling of subprime mortgage lending is going to have on prices for all those newly built homes, clearly visible from the freeway.

This story($) in yesterday's Wall Street Journal had the graphic below showing a total of five California communities with delinquency rates that are increasing rapidly. Ranked by percent of loans in default, East Coast communities are ahead by a wide margin, but the bubble started there many months before it did in California. Prediction: the Golden State will quickly narrow the gap. [click to enlarge]

Not being familiar with the areas of Massachusetts or New Hampshire indicated in the graph, it's not known whether a similar pattern exists there, but in California, the map looks like this: [click to enlarge]

It would be a reasonable guess that Fresno, Visalia, and Bakersfield are not far behind those areas already circled in red.

The text of the story seems to be just more of the same subprime news that everyone's been hearing for the last two months. Surprise! Some economists are optimistic.

As more financially stretched homeowners renege on their debts, and mortgage lenders go under by the dozen, economists are surprisingly sanguine about the broader economy's ability to weather the storm. But they add a big caveat: Much depends on how investors react to an increasing wave of worrying news, and how much some homeowners' difficulties aggravate the nation's deep housing slump.

By all accounts, the market for "subprime" mortgages -- home loans made to people with poor or sketchy credit histories -- has unraveled with impressive speed and intensity. In some parts of California, the proportion of seriously delinquent subprime loans has quadrupled in the past year to about one in eight, according to data provider First American LoanPerformance. In the past month, subprime lenders have run into serious trouble or shut their doors at a rate of about two a week.
...
So far, though, many economists -- including Federal Reserve Chairman Ben Bernanke -- haven't changed their forecasts as a result of the subprime troubles. Some see the sharp rise in defaults among riskier borrowers as a natural, albeit acute, symptom of the housing slump that began in late 2005, rather than a separate ailment in itself. With house prices falling, consumers who got no-money-down mortgages with the help of loose lending standards, have little to lose by walking away from their homes and debts.
...
Ethan Harris, chief U.S. economist at Lehman Brothers in New York, estimates foreclosures in the subprime market could bring an additional 15,000 to 20,000 homes on to the U.S. market every month starting next year.

The pain could be particularly acute in frothy markets such as California and Florida, and in depressed places such as parts of Ohio and the auto-producing areas of Michigan. In some areas in and around Detroit, Cleveland and Atlanta, subprime loans make up more than half of all mortgage loans outstanding, according to First American LoanPerformance.

"In some of these regions you could have a pretty tough environment, in which a bad local economy, tightening credit and weakening home prices all kind of reinforce each other," says Mr. Harris.

Anyone passing through these areas will notice that all the billboards are still there, pitching the American dream of homeownership to anyone who wants it.

Stop throwing away your money on rent - you could be in a brand new home now!

Bad credit - no problem.

No money down - no problem.

Until now.