Based on current performance, 2006 is on track to be one of the worst ever for subprime loans, according to UBS AG. "We are a bit surprised by how fast this has unraveled," says Thomas Zimmerman, head of asset-backed securities research at UBS. Roughly 80,000 subprime borrowers who took out mortgages packaged into securities this year are behind on their payments, the bank says.80,000 is not a big number, given that roughly 50 million households (about half the households in the U.S.) own 20% or more of their homes. Even if the deliquency incidence rises to 500,000 households, I don't think it will materially impact the economy. If it gets up to 2.5 million households, yes I think it's a real problem at that point, because that will exceed the unemployment rate, which suggests that even people earning regular income are in way, way over their heads.
The few bears that are left over in this post-2002 tax cut expansion will tell you that the sky is falling with this rise in delinquencies. I say, not yet.
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