Yesterday I heard through a reliable source that the credit union of a major corporation headquartered in Connecticut is suddenly seeing a larger than usual number of employees in financial distress. Several have approached their credit union seeking help.
Most of the problems are housing related. Many of these troubled employees had purchased homes in recent years. Others had refinanced existing mortgages. The problem is they relied on new and exotic mortgages including interest-only mortgages with very low teaser rates. These mortgages are now being adjusted to a higher rate. In addition, borrowers have to start making principal payments. They were already stretching themselves as it was, but suddenly their required monthly mortgage payments have at least doubled.
RealtyTrac, which follows foreclosure rates, says the number of homes nationwide that are in some stage of foreclosure is growing. The highest foreclosure rate is in the Detroit area, which has suffered from the automobile industry's slowdown. Many parts of Florida are also seeing rising numbers of foreclosures.
Yet many economists continue to ignore these warning signs. They all seem to be focused on holiday sales. Perhaps consumers will keep up the spending for a while, but how much longer can that last if some of the air is coming out of the housing bubble?