I was about to call it a night last night, when I ran across this great article by Peter G. Miller at Realty Times.  It was too good to pass on.  Miller talks about Montgomery County, Maryland, and how a county that is as "un-subprime" as it gets is having meltdown problems of its own:

According to the 2000 Census, among all 3,142 counties nationwide Montgomery ranks 15th in per capita income and 13th in median household income ($71,551). Among adults, 59.2 percent have a bachelor’s degree and 30.6 percent have graduate or professional degrees. The county is home to the National Institutes of Health, the Food and Drug Administration and a vast number of private research facilities. It is a place loaded with doctors, lawyers, researchers, entrepreneurs and well-paid government workers.

I mention these numbers to provide some context. If Montgomery County can be seen as generally well-to-do — and that’s what the numbers say — then it ought to be a place where the impact from the much-publicized "subprime" mortgage meltdown is minimal if nonexistent.

Sales are definitely down in Montgomery County:

Information from Metropolitan Regional Information Systems (MRIS), the major MLS in the area, shows that home sales in Montgomery County fell 41.47 percent between September 2006 and the same period this year. Amazingly, average prices fell by just 1.23 percent during the year.

OK, so sales are down, it happens.  There are a lot of pundits who will tell you that wealthy homeowners have the resources to wait for either buyers or market improvement to come along.  What is interesting is what is happening to foreclosures:

Even in Montgomery County you can’t ignore the massive increase in foreclosure activity.

Figures from RealtyTrac.com tell the story: In the first nine months of 2006 there were just 184 foreclosure actions in Montgomery County. This year? During the same period foreclosures increased 971 percent to 1,971 homes.

So what’s the deal?  According to Miller:

Why then have foreclosure numbers exploded? The answer doesn’t concern subprime loans, it concerns the entire mortgage system, a system where loan officers are not required to get the best rates and terms for borrowers, overcharging borrowers is perfectly lawful and federal regulators failed to protect the public interest.

As the Federal Reserve has just reported, it’s not just subprime loans that have caused lenders to scurry. Look what the Fed says is happening with jumbo loans, big mortgages for those with solid credit:

"Domestic banks tightened several lending terms on prime jumbo loans over the past three months. In particular, significant fractions of respondents reported that they had increased loan fees and spreads of mortgage loan rates over their cost of funds and that they had required more stringent income and asset documentation as well as higher minimum downpayments."

 

Miller is right- this is a MORTGAGE problem, not a subprime problem, and the pain is being felt all over.  Foreclosure has become an equal opportunity plague.  It is making its presence felt in affluent areas like Montgomery County- not just in predominantly subprime neighborhoods with predominantly subprime borrowers.