The rapid collapse of subprime lending is giving people all kinds of worries about the long-term impact on the economy and consumer spending but all is not lost. A San Francisco-based hedge fund placed a $200 million bet on San Diego-based Home Lenders Holding Co. Tuesday but one analyst tells the Los Angeles Times the company will need that much again to survive.
Others weren’t so lucky. Wells Fargo tightened its lending standards and 444 people got pink slips last month in that bank’s operations. New Century has states all over the country, including California, trying to run it out of business. No wonder Fannie Mae has stopped buying its loans, which means it faces the unlikely prospect of trying to sell those mortgages on the open market.
But as the Monty Python crew might say, "Always look on the bright side of life." Analysts tell the paper the sub-prime mortgage meltdown won’t kill the economy. Their reasoning: Enough home equity has been built up in the five-year housing boom that people will still want to cash out and buy bigger homes or spend that money elsewhere. The job market is also strong, say economists and that should keep spending humming along.
Hmmm. Well, of course, it could be worse. And while any recession is unlikely to be a major crash, there’s going to be a psychological drag on spending. And lots of folks have already cashed that home equity check and spent the money. They’re probably going to use their earnings to pay down the loans. How much more home equity and how willing people are to extract it are the big but unanswered questions.
