If Times Are Getting Better, Why So Many Defaults?

mortgage defaultsWednesday experienced yet another day of down trading as the Dow was down over 100 points at one point during mid-day, only to close down 66 points. With the downward trading has also come a rather significant bump in volume, which still supports the fact there are more sellers than buyers in the market right now. I was very surprised to not see a rebound today, considering 2-day consecutive down days are a rare thing nowadays. This makes tomorrow's potential to be a green day only that much stronger. I believe there needs a bit more of a rally back to really gain momentum on the down side to complete the leveling trend with the S&P.

May has definitely brought a sentiment change compared to what we saw in April. Just what I am finding in my daily business, there has been a global sentiment change that has taken place. In March and April, about 8 out of 10 of my clients would say they felt that the economy was on the way up and that better days were just around the corner. Now, only about 4 out of 10 really feel that the tough times are behind us. Whether it is the European debt crisis, continuing employment struggles, increased taxes, or sluggish home prices, it is definitely taking its toll on the economy. It seems that in most of my daily, casual conversations, people are bringing up their concerns for our state in the economy. In March, it felt like we were all enjoying a night out on the town after just completing boot camp.

The mortgage crisis will continue to takes it toll on the economy. Very damaging data hit headlines today regarding consumer mortgages that can't help the already dragging economy. More than 10% of home owners have missed a mortgage payment during the months of January - March. This is up from the record height of 2009's 4th quarter 9.5%. 10% may not seem like that big of a deal to the average person, but when you consider just how many people that equates to and then total the amount of outstanding debt, it is massive. On top of this, it is estimated that about 7% of Americans are in risk of losing their homes. Never, since the Great Depression, has the US seen such a large risk of home loss for consumers. If we really consider just how harsh the consequences are of a mass foreclosure process, the results are very depressing. That is 24.5 million people who are in risk of losing their home... Sure, that probably won't affect anything (I hope you sense my sarcasm).

What is even worse is that government intervention has had little effect. The $75 billion bill that Obama issued to assist in home loan modification has all but put a door ding on the problem. In fact, only about 25% of the 1.2 million consumers who applied for the modification program have continued to receive an extended modification program.

Sure, the government will continue to spend, especially with Obama in the White House, however, in my opinion it will take several years for this country to just begin to sort out this mess. Put future inflation aside, the mortgage crisis could be the dagger to bring the market down yet again. What really is becoming dangerous is that now many consumers do not care if they pay their mortgage and actually go and spend money on other things before paying it. So yes, we may see a bit of a rally back tomorrow, but I do not see how things are getting better in the long run. Happy Trading.



    Defaults increase during the early part of an economic recovery.

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