Now foreclosures of 'prime' borrowers rising sharply

Due to growing job losses among previously 'safe' industries (such as government), now it seems that foreclosures and defaults to 'prime' borrowers -- i.e., those with decent credit scores, offering down payments and willing to document their incomes -- are rising sharply. So what does this mean for the overall market? From an L.A. Times story:

Although soaring defaults on subprime loans and other dicey mortgages are a well-known cause of the country's financial crisis, delinquencies and foreclosures now are skyrocketing among "prime" borrowers -- people with good credit histories who documented their incomes when applying for their relatively straightforward mortgages.

Nationwide, 3.07% of prime mortgages were in foreclosure or at least 60 days late in the second quarter of this year, the latest period for which the Mortgage Bankers Assn. has figures, easily topping the previous record of 1.97% set in 1985.

In California, with a jobless rate topping 8% and home prices down more than 40% from their peak and falling, the situation is significantly worse, with 4.15% of prime loans seriously delinquent. That far exceeded peaks of about 2.6% reached in the recessions of the 1980s and 1990s...

By putting more foreclosed homes on the market, the trend is likely to further depress housing prices, intensify the mortgage-related crisis afflicting the financial system and exacerbate the recession most economists believe is already underway...

In California, delinquencies on prime mortgages could increase for years, said Christopher Thornberg, founder of consulting firm Beacon Economics in Los Angeles.

One reason, he said, is that home lenders became so complacent during the housing boom that they did little to qualify borrowers besides having computers check a few facts.

" 'Prime' lost a lot of meaning in the insanity of the last few years," said Thornberg, who was one of the first experts to foresee the housing downturn...

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