Did you know?

I'm sure most who may read this may know the basics (which I'm posting anyway just in case). But I'm including interesting facts with them as of December according to the Wall Street Journal.

Sub Prime Loans are mortgages (and car loans) that go to people with poorer credit. Regarded as risky loans they carry higher interest rates. More than half of those $1.9 trillion (including Jumbo) issued from 2004-2007 are delinquent, in forclosure, or owned by the banks as of December. (These loans were made using math assuming less than 20% would default). This what is referred to as the "Sub-Prime meltdown."

Prime loans are mortgages (and car loans) that go to people with good credit. Regarded as less risky loans, they carry lower interest rates. 6% (so far) of prime loans issued from 2004-2007 are delinquent, in forclosure or owned by banks (again as of December).

Option ARM loans are prime loans that carry a multiple payment options including the ability to pay less than the interest for a given month (thus adding to the principle). Approxiamately $750 million of these loans were issued from 2004-2007. Of these, 28% are delinquent, in forclosure, or owned by the banks. Goldman Sachs estimates that 61% of those issued in 2007 will end in default (not that I trust Goldman Sachs to know what they are talking about; I bet it will bemuch more).

Jumbo loans are loans larger than $500k. I couldn't find numbers for Jumbo loans, but I don't think it is unfair to classify them with sub prime (as mentioned above) for purposes of estimating default rates.

There are additional types of loans that fall under Prime or Sub-Prime headings, but the above basicly covers the vast majority by description. When you see those numbers, you must realize that the "voo-doo math" that was used to compute rates of default and thusly interest rates to charge, basicly yielded less than a 20% default rate. So far, only true prime loans have lived up to that number. So far.

So when you think about the trouble that our banking system is in, you must realize that it is at least three times worse than has already been revealed. And that does not include derivatives trading, which I will address in a future post. Or the leverage problems the banks face which I will also address soon. But this is why I will harp time and time again about the need for our banks to come clean and "reveal what is in their vaults." The truth being told is THE ONLY WAY for us to get out of this mess we are in.

And the truth is not being told because if it ever is, all (and I mean ALL) the people who have power (CEO's, Bankers, Congresspeople) will be exposed as liars or stupid. And we know none of them want that.