Mortgage Blowout: Who's Getting Hit Worst--Homeowners, or Homebuilders?

April 26, 2007 (EIRNS)--More signs of the "financial disintegration" spreading outward from the U.S. mortgage bubble blowout, appeared in multiple economic reports today.

In the most serious development, Moody's Credit Rating Service put out a warning that the biggest homebuilding companies in America are in imminent danger of being "foreclosed" by their banks and other lenders. Pulte Homes, Ryland Group, Beazer Homes all reported big first-quarter losses as the housing blowout hit their revenues hard and also forced them to write off the value of land on which they planned to build houses; these builders, said Moody's, along with Centex Corp. and toll Brothers, Inc. are now in violation of their bond covenants with banks, because their operating revenue is not exceeding their interest costs by the covenanted amount, and some of them have negative cash flow for the past year. Their loans could be called at any time, and, "The next year or so, for them, is going to be pretty grim," according to Moody's analyst Joseph Snyder.

The national inventory of new homes for sale was over 8 months in February, the highest in 16 years; and the builders have been unable to cut them even with aggressive discounting.

Meanwhile, American homeowners had to cut down their home-equity credit outstanding during the first quarter, after eight years of continuous increases, according to a report by MoodysEconomy.com.

And a third report, by Fannie Mae, found that among the record number of foreclosures going on nationwide--at a pace in the first quarter to hit nearly 2 million for the year--the fastest-rising cause, is sheer household indebtedness, making mortgage payments out of reach. This cause, for about 20% of all delinquencies leading to foreclosure, is now second only to loss of jobs, the cause of about 35% of such delinquencies.

This crushing household indebtedness is likely to show up strongly early next week in a steep drop in April auto sales.