First subprime, now prime…what’s left?

The long recession and rising joblessness are taking an increasing toll on the nation’s most credit-worthy borrowers, who are now falling behind on their mortgage and credit-card payments at a faster pace than people with poor financial histories.

The mortgage-delinquency rate among so-called subprime borrowers reached 25% in the first quarter but appears to be leveling off, rising only slightly in the second quarter. The pace of delinquencies for prime borrowers is accelerating. Since prime loans account for 80% of U.S. bank exposure to mortgages and credit cards, these losses could ultimately exceed those from weaker borrowers.


In many cases, these “prime” customers, whose high credit scores afforded them the best interest rates on mortgages and credit cards, lost their jobs over the past few months and only now are running out of temporary fixes that have been keeping them afloat.

via Troubles For ‘Prime’ Borrowers Intensify – WSJ.com.

Was tempting to think some people might remain unaffected by the Financial Crisis, however the more likely scenario is probably illustrated by the crisis ‘prime’ borrowers now find themselves in. While they initially hadn’t suffered much, they are now beginning to feel the pain….the most vulnerable fall off the wagon first, but when the wagon is going down a cliff at breakneck speed the sturdy riders are surely soon to follow. Or, to use a physics analogy a Financial crisis might take the path of least resistance first (laying off of low wage workers, or those with weak bargaining positions for example) but sooner or later those paths are going to be full to capacity, and a different path of market correction will need to be taken…

Which is why, despite the speed of financial transactions, it still takes time for repercussions to flow through the economy to all players. It is still naive to think that you won’t suffer from the financial crisis if you haven’t suffered yet.

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