The Next Mortgage Mess?

Increasingly, homeowners are seeing the fruit of their irresponsibility as mortgage defaults continue to rise. And although the subprime mortgage mess has begun to show signs of stabilizing, a bigger crisis may be on the horizon. From April 2007 to April 2008, the number of defaulted Alternative-A mortgages—those given to applicants with good credit scores but no proof of income or assets—increased fourfold to 12 percent. Meanwhile, defaults on prime mortgages doubled to 2.7 percent.The prognosis isn’t good. Thomas Atteberry, president of Los Angeles-based First Pacific Advisors, forewarned, “Subprime was the tip of the iceberg... Prime will be far bigger in its impact.” Echoing this, JP Morgan Chase Chairman and CEO James Dimon indicated he anticipates a tripling of prime mortgage losses for his bank in the months ahead. Last week, Fannie Mae and Freddie Mac, which together own or guarantee almost half of U.S. mortgages, announced they would increase payments to their mortgage companies, but just days later, Freddie Mac posted a second-quarter loss of $821 million and sister Fannie posted a loss of $2.3 billion

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