Prime Time

As we move towards one hundred percent burn through in the sub-prime mortgage market, another wave is mounting as it approaches the shores of banks balance sheets in the form of prime loans, these loans were eerily similar to those loans made to individuals with bad credit in there qualification and adjustment structure, but these clients had good credit scores. The mortgage industry labeled them as JUMBO loans, or PAY OPTION loans referring to the typically sizable loan amounts usually exceeding the six hundred thousand plus range. Who wouldn't be attracted to the NO MONEY DOWN, NO INCOME VERIFICATION pitch on a million dollar mansion in the unprecedented appreciation wave of just two years ago. The fact is that just as many people fell victim to the predatory practices of these unscrupulous individuals within the mortgage industry, all the while the enabler, the U.S. GOVERNMENT turned a blind eye in the form of mortgage deregulation instituted in the late 1990s. The majority of these loans adjust upward in the next twenty four months A trend of defaults occur due to income parameters and unemployment figures leading to foreclosure, the loans land as toxic elements on bank balance sheets. This drives down the price of financial stocks instigating a sell off and market volatility. The government throws massive capitol into the banking system in an attempt to absorb these bad loans, and the cycle repeats itself. why not just implement the strategy of the 1980s savings and loan fiasco where a bad bank is established to harbour or de-leverage this bad debt, it worked well in the past and could work again in the future.