According to First American CoreLogic LoanPerformance data, the percentage of both subprime and prime mortgages that are severely delinquent are at record highs. In the Alt-A mortgage market, where loans were made to individuals with good credit who didn't fully document their incomes, nearly 11% of borrowers were more than 60 days behind in their payments as of March.
Delinquency rates and losses are also rising on construction loans, some commercial loans and other consumer debt like credit cards, which will only keep lenders' purse strings tight.
More than $200 billion of complex mortgage securities called collateralized debt obligations have hit "events of default," which give some of their investors the right to force the vehicles to liquidate their holdings of mortgage-backed securities or swaps tied to them.
Some of these CDOs are selling off their assets. In a recent report, J.P. Morgan analyst Christopher Flanagan estimated that holders of the top tranches of CDOs can expect to recover just six to 46 cents on the dollar on their investments, bad news for the bond insurers that wrote guarantees on many of these vehicles.
Ask yourself the following questions:
1.) Does this indicate the credit markets are getting better or worse?
2.) Is this a good time to bet on a turnaround in the financial sector?
