XRTrader

Should Banks Extend and Pretend?

People fail to realize something. Previously the chance of default was somewhat (but not entirely) correlated with the relative value of the asset compared to the total loan amount. I do not think that will be the case as we go forward in this housing collapse. Look around you! How many people do you know who are "underwater" in their loans? I'm a young proffessional and the vast majority of the people i know have underwater loans. Many are considered "credit risks" by their mortgage companies (ARMs, etc). Yet, they continue to pay their loans on time....previously, there were isolated events that correlated to declining assett to value ratios...i think this was a proxy for loan defaults (and to a lesser extent a direct causitive factor). Today this is a more universal problem, and i doubt we will see nearly as high a correlation as historically indicated.