Spreading Fast
The default fever on mortgages is spreading fast. Starting in subprime mortgages, the default wave has now reached better credit borrowers. Countrywide just announced a sharp increase in late payments, including those with good credit. Uh-oh. Here is a key passage:

The new data come amid growing anxiety about a surge in late payments on subprime loans, which accounted for about a fifth of all new home mortgages granted last year. While prime loans are performing much better and the vast majority of Americans are keeping up on payments, some analysts fret the damage is starting to creep up the credit spectrum and won't be confined to subprime borrowers.

Bankers need to get their heads together and solve the mess they have made. Bankers relaxed credit standards and created exotic mortgages that the borrowers did not understand. The bankers outsmarted themselves. The exotic mortgages can make the lenders big money, but the profits start to evaorate when the borrower stopes making payments. The banks are going to need property management divisions.

Innocent homeowners are going to be hurt if the defaults accelerate the fall in home prices and start erasing equity. Fannie Mae's statement that it won't buy certain exotic mortgages anymore is a good start. It will slow the creation of these loans as underwriters won't make loans they cannot sell. But it is a case of closing the barn door after the animals have left.