Condotel California

Welcome to the Condotel California?

IMO however the biggest problems with the current housing situation are in the subprime mortgage market. First, the vast majority of sub borrowers are stupid. They aren't able to deal rationally with what's coming. They'll stop all other saving, investment, whatever and run up any consumer credit they have BEFORE they see a problem. By then it will far too late. A maxed out consumer that has been ignoring routine mantainence, scrimping on healthcare and insurance, has a now old car with still sizable balance and nearly maxed credit cards is going to miss their property tax payment or something and then just stop paying everything, thinking they are hoarding against the inevitable losing their "stuff" and starting out clean all over again. Like I said, stupid.

The real stupidity is the lenders. They have been counting neg-am balance accruals as current income and when late pays and those penalties start to pile up they'll call those current income as well. By the time they realize they have nowhere near the reserves against loses it'll be too late for them as well. Like the stupid borrower the banks will wish to prop up shareholder value until the elephant in the corner is too big. The write-downs and stock hits are going to be frightening.