Trouble ahead: 2007 loans looking shaky

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Good morning. The L.A.Times reports the orgy of bad lending that created the current mortgage mess appeared to continue well into this year: ‘The sub-prime loans backing mortgage bonds created early this year are going bad even faster than those issued in early 2006, a year that set a record for delinquencies on such loans, according to two new studies.’

The current foreclosure wave is being fueled by loans made in 2005 and 2006; these new studies signal that 2007 loans were just as poorly underwritten -- perhaps worse -- and will keep the foreclosures coming for quite a while.

Another aspect here is pretty troubling: when loans made in late 2006 or 2007 are already going bad, it’s hard to blame the terms of the loan -- misleading teaser rates, adjusting interest rates, payment shocks, etc. -- these appear to be borrowers who couldn’t afford the initial payments, let alone the resets.

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Photo Credit: AP