Home loans delinquencies at 10%

According to Lender Processing Services, home-loan delinquency rates in the US reached 10% in December, up from the record-high 9.97% in November. Accounting for foreclosures in the pipeline, the total non-current rate stands at 13.3%, according to the data in the LPS database. When extrapolated for the entire mortgage industry, 7.2 million mortgage loans are behind on their payments. Earlier in January, Fitch Ratings reported the delinquency rate among prime jumbo residential mortgage-backed securities (RMBS) almost tripled to 9.2% in December 2009. For the amount of loans current at the end of 2008, 4.64% fell into serious delinquency. That means that of the loans current as of Dec. 31, 2008, 2.3 million fell into serious delinquency by December 2009. However, the 2009 vintage loans are performing better than any of the prior five years and improve as more origination months are added into the pool of loans. More restrictive underwriting guidelines drive the improvement s, but liquidity “is still not available where it is needed most,” according to the report. States with the most non-current loans are: Florida, Nevada, Mississippi, Arizona, Georgia, California, Indiana, Michigan, Illinois and Ohio. States with the fewest are: North Dakota, South Dakota, Alaska, Wyoming, Montana, Nebraska, Vermont, Colorado, Oregon and Washington.

Another 800,000 jobs gone?

When the economists at the Labor Department's Bureau of Labor Statistics (BLS) release their annual revision of U.S. payrolls from April 2008 through March of 2009 on Friday, it my turn out that job losses were underestimated by close to a million jobs. The department has already given a preliminary look at this Friday's revision, and it says it believes it will show 824,000 fewer workers on payrolls than the current estimates. That would be the biggest downward revision in the 30 years for which comparisons of those adjustments is possible. Typically the revision results in only a slight change in the previous estimate -- about 0.1% to 0.2% of the total number of jobs, but economists say it shouldn't be a surprise that there is such a big revision this time, given the severity of the economic downturn. "Most of the time it's reasonably accurate. But when there are very sharp changes in the economy, they tend to miss and it becomes a big problem," said Dean Baker, co-direc tor of the Center for Economic and Policy Research.

The problem is that BLS models appear to have grossly overestimated the number of new businesses that opened during the recession. The payroll number is created through a monthly survey of employers, but that survey misses employers who start a business during the course of the year, as well as those who have gone out of business. So every month BLS uses what is known as a birth-death adjustment to estimate the number of jobs created or lost from that turnover in business. During the April 2008-March 2009 period, that adjustment added jobs to the overall payroll number in 11 of the 12 months, resulting in a net gain of 717,000 jobs. In case you're waiting for the bad news - there is a concern that this problem didn't end in March of 2009. In fact, the adjustment added even more jobs -- 990,000 -- in the nine months reported since then, so another big revision in the payroll numbers could be looming a year from now. "There's certainly a disconnect between economists like my self who say the recession ended in May or June and the person on the street who says the recession hasn't ended," said John Canally, economist at LPL Financial. "This report is only going to widen that gap."

Home price increase

Home prices in January increased 2.3%, marking the first year-over-year increase in more than three years, according to the Home Data Index (HDI) from Clear Capital, the real estate data provider. In all, prices gained 1.8% on the rolling-quarterly scale into January. All regions but the Northeast, which posted a 1% drop, saw increases over the previous three months. Prices in the Midwest increased 5%. The South had a 1.5% rise in prices, and the West had a 1.3% increase. Alex Villacorta, senior statistician at Clear Capital, said that the year-over-year price gain is good to see despite near record high real-estate owned (REO) saturation rates. That rate declined 0.7 percentage points to 24.8% in January, but, according to the report, regions with the highest level of REO have had steeper recoveries. “Recovery of home prices has generally been more notable in the regions with the highest level of REO saturation,” according to the report. The trend is most apparent wi th higher levels of REO saturation seen in the West, 35.4%, and the Midwest, 28.4%. “The sustainability of current price gains will be challenged in 2010, given that most lenders and analysts predict a significantly larger number of REOs will reach the markets. Further, this suggests that as the dynamics of supply and demand evolve, different markets will have varied responses to increased REO activity,” Villacorta said.

A ticking time bomb

High-profile commercial real estate purchases made at the height of the real estate bubble have started to implode left and right, and with the nation's unemployment rate still hovering at 10% and consumer spending still at sickly levels, borrowers who deal in retail stores and office buildings will feel even more squeezed before long. "Businesses just aren't taking office space and consumers aren't buying things at retail stores," said Mark Riedy, the executive director for the Burnham-Moores Center for Real Estate at the University of San Diego. That's a deadly prospect for the thousands of community and regional banks nationwide that hold roughly $860 billion in commercial mortgages and construction and development loans. Georgia's Synovus Financial, Zions Bancorp of Utah and Buffalo, N.Y.-based M&T Bank are just a few of the banks whose loan portfolios are highly concentrated in commercial real estate, according to credit rating agency Standard & Poor's.

But trying to gauge the scope of those problems has proven difficult as banks have been slow to recognize losses on many of those loans, because many lenders have not seen the need to foreclose on a borrower who is still current on their payments even if they are upside down on their loan. At the encouragement of industry regulators, banks have extended the terms of many of their commercial real estate loans, hoping that property values or occupancy levels will improve before long. "There is an element of 'extend and pretend' going on," said Tanya Azarchs, credit analyst and managing director for Standard & Poor's. "It is in their [banks'] interest to do that." Unfortunately, the consensus is that neither prices nor occupancy rates will improve anytime soon. Estimates published last November by the Urban Land Institute and PricewaterhouseCoopers suggest that commercial real estate vacancies will continue to increase in 2010, while prices could tumble further during the ye ar. Prices could fall as low as half their peak levels from 2007.

Jobless claims higher

The Labor Department says there were 480,000 initial jobless claims filed in the week ended Jan. 30, the Labor Department said in a weekly report. This is the highest level since Dec. 12 and up 8,000 from a revised 472,000 the previous week. Economists were expecting claims to drop to 455,000, according to a consensus estimate from Briefing.com. The 4-week moving average of initial claims was 468,750, up 11,750 from the previous week's revised average of 457,000. The government said 4,602,000 people filed continuing claims in the week ended Jan. 23, the most recent data available. That was up 2,000 from the previous week's revised 4,600,000 claims. The 4-week moving average for ongoing claims fell by 51,250 to 4,617,500 from the previous week's revised 4,668,750 but, as always, the drop may just mean that more filers are dropping off those rolls into extended benefits. Unemployment claims in 2 states rose more than 1,000 for the week ended Jan. 23, the most recent data av ailable. Claims in Oregon jumped the most, by 4,336. A total of 31 states said the claims fell by more than 1,000. Claims in California dropped the most, by 22,674, which the state said was due to a shorter work week.

DSNews.com - No more new loan products for Fannie and Freddie

The Federal Housing Finance Agency (FHFA), created to oversee the GSEs Fannie Mae and Freddie Mac since the government essentially nationalized the two companies a year and a half ago, also said it plans to reduce Fannie Mae and Freddie Mac’s mortgage portfolios. The companies will not be “substantial buyers or sellers of mortgages,” going forward, FHFA Acting Director Edward DeMarco said in a letter to lawmakers. “In view of the critical and substantial resource requirements of conserving assets and restoring financial health, combined with a recognition that the enterprises operate today only with the support of taxpayers, I believe the enterprises should concentrate on their existing core business, including minimizing credit losses,” DeMarco wrote. Since the federal government took over, Fannie Mae has realized losses of $111 billion, and Freddie Mac has realized losses of $63 billion. These losses have exhausted the value of each company’s shareholder equit y and resulted in considerable draws from Treasury, DeMarco said. “I have communicated to each enterprise the need for rigorous analytics in considering different forms of loss mitigation to ensure credit losses are being minimized,” DeMarco wrote. “Such analysis will also guide the enterprises’ participation in any potential new administration efforts regarding foreclosure prevention. And where there is no available, lower-cost alternative to foreclosure…my expectation is that the enterprises will move to foreclose expeditiously.”

Lukewarm retail sales

According to Thomson Reuters data, sales at stores open at least a year, or same-store sales, are forecast to rise 2.4 percent compared with a drop of 5.7 percent last year. If these figures turn out, it will mark the fifth consecutive monthly sales increase after a year's worth of declines during the recession, but so far, 55 percent of the retailers that have reported have fallen short of the estimates, Thomson said. As merchants reported their sales figures, several stores including Limited Brands and Macy's announced solid sales increases. Even Abercrombie & Fitch, which had seen its teen customers defect to less expensive alternatives, offered a pleasant surprise -- a robust sales increase instead of a sharp decline that Wall Street had expected. Luxury chains such as Nordstrom Inc. and Saks Inc. also had strong sales gains that well surpassed Wall Street expecations, as the affluent appear to be encouraged by their rebounding stock portfolios. But J.C. Penney Co., S tage Stores Inc. and teen retailer Wet Seal were among the stragglers that suffered declines. Target Corp. and Costco, excluding gasoline sales, had only modest gains.

Home prices bottomed?

According to the PMI Mortgage Insurance Risk Index, the risk of home prices dropping even lower in the next two years is stabilizing in most Metropolitan Statistical Areas (MSAs). The index charts the chance that home prices will rise or fall along a yearly timeline. To do this, PMI analysts translate a percentage, which predicts the probability that house prices will be lower in two years, into a Risk Index score. A score of 100 means there is a 100% chance that the prices will be lower in two years for that MSA. According to the latest Index, risk may have peaked for many MSAs, though the average risk score remains “very high.” In Q309, risk dropped in 22 of the top-50 MSAs. Of all the 384 MSAs measured in the Index, 212, slightly more than half, had decreases in risk scores.

But even though risk declined in the majority of MSAs, the average risk score stayed above 50, dropping for the first time in over a year from 58.3 to 57.5. MSAs in Florida, California, Nevada and Arizona continued to have the highest risk scores in the nation during Q309. All MSAs in Florida, Nevada and Arizona have risk scores in the 90s. But California showed some improvement. Of the 28 MSAs measured in California, 25 saw decreases in risk scores from Q209 to Q309. North Dakota, South Dakota, Nebraska and Vermont continue to show minimal risk. North Dakota leads the nation with the lowest risk score of 1.6. The leading MSAs in terms of risk correspond closely with the MSAs holding the highest foreclosure rates in the RealtyTrac Year-End 2009 Foreclosure Report.

Unemployment rate down, more jobs lost

The Labor Department says the good news is that unemployment fell to 9.7% in January, much lower than economists' forecasts of 10%. The bad news is that the U.S. economy lost 20,000 jobs in January. The Labor Department also released an annual revision of U.S. payrolls on Friday, using data that wasn't initially available. Losses for 2009 alone came to 4.8 million jobs, more than 600,000 more than previously estimated. The revision showed the economy has lost 8.4 million jobs since the start of the recession in December 2007 -- 1.4 million more job losses than initially reported. The payroll number for December was revised to a net loss of 150,000 jobs. The government had previously indicated that 85,000 jobs were lost in December. But the government said the tepid job growth initially reported in November was actually much stronger than previously believed. Jobs rose by 64,000 in November, up from an initial estimate of 4,000. It is the only month in the past two years in which jobs grew.

January's report offers hope that employers are starting to reverse course and may start adding jobs soon. Aside from November's gain, January's job losses were the smallest since the recession began and are down from the huge loss of 779,000 jobs in January 2009. The manufacturing sector added jobs for the first time since January 2007. Its gain of 11,000 jobs was the most since April 2006. Retailers added 42,100 jobs, the most since November 2007, before the recession began. Temporary help services gained 52,000 jobs, its fourth month of gains. That could signal future hiring, as employers usually hire temp workers before permanent ones. The average work week increased to 33.3 hours, from 33.2. That indicates employers are increasing hours for their current workers, a step that usually precedes new hiring.

Rent free for years

Diana Olick points to a new trend among homeowners. The percentage of borrowers who are delinquent on their mortgages but paying their credit card bills on time is growing, to 6.6 percent in the third quarter of 2009 from 4.9 percent in the same quarter of 2008, according to a new study by Chicago-based TransUnion. At the same time, the share of borrowers that are delinquent on credit cards but current on their mortgages slipped to 3.6% from 4.1%. In an interview with Reuters, the author of the study, Sean Reardon, confirmed, "This goes against conventional wisdom and that has always been that, when faced with a financial crisis, consumers will pay their secured obligations first, specifically their mortgages."

As Olick points out, "most troubled borrowers have already figured out that there are so many forces in motion trying to save homes from foreclosure that they can easily miss one, two, five or six mortgage payments before even getting a call from the bank; then, they've got many more monterhs of negotiations over modifications, short sale options, even the foreclosure process itself, insuring they will have a roof over their heads for a good long time. Home building Analyst Ivy Zelman said that in some Florida counties the courts are so backed up with foreclosures that it can take up to three years to get one home through the system. That's three years of living rent-free, which frees up plenty of cash to pay the Visa bill." The study, based on a database of 27m consumer credit records, found the magnitude of delinquency is significantly higher in the lowest credit scoring segment, opposed to delinquency in the total market. The payment priority shift to credit cards over mortgages is even more pronounced in sand states like California and Florida, which experienced a more severe housing bubble effect, TransUnion said.

US debt ceiling raised

The House of Representatives voted yesterday to raise the debt limit by $1.9 trillion, raising the debt ceiling to $14.3 trillion, a new high for the amount of debt for the U.S. As recently as 2001, the U.S. debt was only at $5.7 trillion, but it exploded after Sept. 11, 2001, amid record spending by the Bush and Obama administrations. If Congress doesn't hike the debt ceiling, the U.S. would be unable make good on Social Security and Medicare payments. The Senate approved the debt limit increase in mid-January on a 60-40 party-line vote. The House vote was a close one, at 217-212. All Republicans and more than 30 Democrats voted against raising the debt ceiling - moderate and fiscally-conscious Democrats were leary of voting for the bill. The debt ceiling increase is part of a broader bill that would impose so-called "PAYGO" rules on the House. In other words, the House would have to pay for all tax cuts or programs it creates so they are budget neutral. In theory, anyw ay.

Mortgage rates slightly higher

Freddie Mac’s weekly survey put the average rate for a 30-year fixed-rate mortgage (FRM) at 5.01% with a 0.7 origination point for the week ending February 4, up from last week’s average rate of 4.98%. It's the first week-over-week increase in 2010. A year ago, the 30-year FRM was 5.25%. Bankrate.com’s weekly survey of large banks and thrifts put the 30-year FRM at 5.15%, up from 5.13% last week. Freddie put the 15-year FRM at 4.4%, up from last week’s average rate of 4.39%, but still down from last year’s rate of 4.92%. Bankrate.com put the 15-year FRM at 4.55%, up from 4.54% last week. Freddie Mac vice president and chief economist Frank Nothaft said despite the increase, rates remain relatively stable amid other positive developments, including recent increases in pending home sales and mortgage applications. “Even more encouraging news came from the Federal Reserve’s Senior Loan Officer Opinion Survey, which reported that banks have generally stopped ti ghtening standards on most types of loans in the fourth quarter of 2009, with commercial real estate as the exception,” Nothaft said. “However, banks have yet to unwind the tightening that occurred over the last two years. Moreover, substantially fewer banks expected credit quality to deteriorate over the coming year,” he added. Freddie said the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.27%, up from last week’s rate of 4.25%. Last year, the five-year ARM averaged 5.26%. Bankrate.com’s average rate for five-year ARMs was 4.56%, up from 4.54% last week. Freddie’s survey of the one-year Treasury-indexed ARM put the average rate of 4.22%, down from last week’s rate of 4.29% and last year’s 4.92%.

Aloha Friday,

Stocks took a beating this week with the DOW closing at 9941. OUCH!!!!!! What does this mean to us?? You guessed it…..lower interest rates. There is always a silver lining isn’t there?

Needless to say, this should help some of our buyers save money on their payments. This might be a great time to pick up the phone just to re-connect with your buyers and let them know the rates came down this week.

Mortgage Rates Improve on Global Concerns

The biggest influence on mortgage rates this week came from outside the US. Concerns about the possible default of sovereign debt in smaller nations caused investors to seek the relative safety of US fixed income securities. This week's economic data was roughly balanced in terms of positive and negative surprises. The added demand for safer investments helped mortgage rates move lower during the week.

The recession has impacted countries in different ways. Some of the hardest hit, have been smaller European nations, such as Greece and Spain. As members of the European Union, they must adhere to certain restrictions which limit their flexibility to adjust domestic economic policy. As a result, some countries may be at risk of defaulting on government debt. Investors responded by buying relatively safer assets such as US bonds, including agency mortgage-backed securities (MBS). Investors also withdrew money from global stock markets during the week. In the US, the Dow fell about 200 points.

Friday's important Employment report contained mixed news. Against a consensus forecast for a gain of 15K jobs, the economy lost -20K jobs in January. The big story, though, was an unexpected drop in the Unemployment Rate to 9.7% from 10.0% in December. Two separate sources of data are used to compute the change in jobs and the change in the unemployment rate, and during volatile periods the two methods can show widely divergent results. The decline in the unemployment rate in January was viewed as very good news by many economists, pointing to an improving labor market. On a more negative note, revisions to older data showed that the economy has lost 8.4 million jobs since the start of the recession in December 2007, from the previous reported level of 7.2 million.

Dishonest Lenders Prey on Uneducated Borrowers

I have spent the last 15 years trying to educate borrowers about how the mortgage industry works. I strongly believe that an educated consumer is less likely to get ripped off. The government stepped up to the plate with the new mandatory 2010 GFE (Good Faith Estimate) for all new applications after January 1st, 2010. Now that a month has gone by, it is clear how the dishonest lenders are getting away with playing their old tricks of providing false or misleading closing costs in an effort to get a borrower to commit. How are they doing it? By realizing that most consumers do not know about the new 2010 GFE. If a consumer doesn’t know what they should be receiving, how would they know they never got it?

The trick is very simple. Give the consumer any other form that shows closing costs, except the actual approved HUD form. If a consumer gets the actual HUD approved 2010 GFE, the lender is bound by those fees. NO OTHER FORM CARRIES THE RESTRICTIONS AND COMPLIANCE MANDATED BY HUD. In the past month I have had consumers forward several different forms of various names. All show fees, all look official. None bind the lender to what they have promised. The new form is three pages. Page one has the seal of the US Housing and Urban Development in the upper left corner.

I hate to say this about my own industry, but in today’s world, you can no longer take someone’s word on anything. I am amazed with all the new rules and regulations, lenders left and right are violating the law.

Here are some simple rules to remember when shopping for a mortgage: The lender must provide you the 2010 GFE within 3 business days of your application for a loan. The lender can not require you to provide any income or asset documentation as a condition of receiving the 2010 GFE. And the most important rule to remember: Other than collecting a fee for the initial credit report, the lender can not request any other money until the SEVENTH business day after your application day. This last rule is the one most violated by dishonest lenders. They know that once they get money from a consumer, 90% will continue the loan regardless of the problems encountered.

Hawaii Mortgage Company strictly follows all state and federal laws. Since the day we opened our doors over a decade ago, we have remained complaint free, and have thousands of happy clients to show for it.

Also Notable:

The Unemployment Rate dropped to the lowest level since August
December Pending Home Sales, a leading indicator, rose 1.0%
The Treasury will auction $81 billion in 3-yr, 10-yr, and 30-yrs next week
The Fed purchased $12 billion in agency MBS during the week ending 2/3
 

Average 30 yr fixed rate:

Last week:
+0.05%


This week:
-0.05%

 

Stocks (weekly):

Dow:
9,950
-200

NASDAQ:
2,125
-50
 

Week Ahead

It will be a light week for economic data next week. The biggest report will be Thursday's Retail Sales data. Retail Sales account for about 70% of economic activity. The Trade Balance will come out on Wednesday, and Consumer Sentiment will be released on Friday. There will be Treasury auctions on Tuesday, Wednesday, and Thursday.

 

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Permanent Modifications Showing Slight Improvement

According to a report from Barclays Capital, modification rates picked up over December and January as servicers converted more trials into permanent modifications under the Home Affordable Modification Program (HAMP). According to the latest HAMP progress report from the Treasury, servicers provided more than 66,000 permanent modifications through December. Participating servicers receive more than $35 billion in total capped incentives, but the program could reach as high as $50 billion. Modification rates "turned a corner" in October 2009, according to BarCap analysts, congruent with the rise in HAMP permanent conversion rates. The Treasury recently changed document guidelines for the servicers that go into effect June 1, 2010. After that date, borrowers seeking help through the program must provide certain documentation to enter into a trial modification. At the start of the program, servicers collected the documents during the three-month trial plan, creating a lag time in the permanent conversion rate. Out of the more than 1 million borrowers in HAMP trials, 34% have been on private-label securitized loans –

meaning the loans are not held by Fannie Mae, Freddie Mac or Ginnie Mae. After assuming a similar conversion rate for non-agency loans, analysts found 22,600 non-agency permanent modifications under HAMP. "This ties in closely with the 25,000 loans modified in past two months that we see using our custom logic on Loan Performance. A higher number based on our logic also makes sense to us as some servicers have non-HAMP modification programs," according to the report.

DSNews.com - FTC says no more upfront loan modification fees

The Federal Trade Commission has proposed a new rule that would prohibit third parties, including loan modification specialists and loss mitigation attorneys, from collecting payment for foreclosure prevention services until after they obtain a documented offer from a lender or servicer for a modification or other form of mortgage relief. "Homeowners facing foreclosure or struggling to make mortgage payments shouldn’t have to contend with fraudulent ‘companies’ that don’t provide what they promise," FTC Chairman Jon Leibowitz said. "The proposed rule would outlaw up-front fees so companies can’t take the money and run." The FTC has brought 28 cases against companies suspected of foreclosure rescue and mortgage modification scams, and state and federal law enforcement partners have brought hundreds more. According to the agency, generally these cases charged that companies do not provide the services they promise and that they misrepresent their affiliation

with the government and government housing assistance programs, including the Making Home Affordable program. "Far too many homeowners have paid up-front fees to bad actors who promised loan modifications but never delivered," Treasury Secretary Timothy Geithner said. "I commend the FTC for proposing a strong set of safeguards to protect consumers from these predatory practices." The proposed rule also would bar providers from telling consumers to stop communicating with their lenders or mortgage servicers. It would also require them to disclose to consumers that they are for-profit businesses, the total amount consumers will have to pay, that neither the government nor the lender has approved their services, and that there is no guarantee that the lender will agree to change their loan.

Geithner says no double dip

U.S. Treasury Secretary Timothy Geithner said yesterday that the risk the U.S. economy will slip back into recession is lower now than at any time in the past year, but that recovery will be slow and uneven. Even though credit ratings agency Moody's last week warned that anemic U.S. growth, on top of already stretched government finances, could put pressure on the country triple-A status, Geithner dismissed concerns that rising U.S. indebtedness might put pressure on the United States' prized triple-A credit rating. "Absolutely not," Geithner said when the interviewer suggested rising debt levels could put pressure on the top-notch rating. "That will never happen to this country." Former Treasury Secretary Hank Paulson, however, says that reducing the federal budget deficit poses "the most serious long-term challenge" to the United States. He also says he realized as Treasury secretary it was tough to convince lawmakers to tackle controversial issues without a crisis. Gei thner claimed there were even some encouraging signs in Friday's report on U.S. unemployment for January, which showed another 20,000 jobs lost but a dip in the unemployment rate to 9.7 percent from 10 percent in December. He said the Obama administration is doing everything it can to enhance recovery prospects and played down chances that growth might stall and push the United States back into recession.

The EU debt crisis and us

"Sovereign debt panic" finally struck last week, causing severe one-day drops in stock markets from New York to London to Toronto on Thursday. The epicentre of the crisis is Greece, in danger of defaulting on its debt payments to worldwide holders of its government bonds, or sovereign debt. The world is awash in potentially unsustainable debt, and the U.S. looms largest. President Barack Obama just tabled a budget that projects a doubling in America's national debt, to $28 trillion (U.S.), by decade's end. That's twice the size of the U.S. economy. Yet it's the EU who is threatening the wealth of all of us. If Greece defaults on its debts, and it's followed by Spain and Portugal and possibly Ireland and Italy as well, then the collapse of Lehman Brothers in 2008 will seem like a mere blip. It isn't so much the risk of default by these countries themselves that is spooking the markets at the moment, but the possibility that a still-skittish financial system will succumb to

another fear-driven contagion.

Normally Greece would simply devalue the drachma, or allow the markets to do it for them, and that adjustment would rebalance the economy and eventually make it more competitive, while also raising the value of foreign liabilities and making the people poorer. But that can't happen, because Greece is part of the monetary union, and the euro is held up by Germany's strength. There's talk of Greece leaving the euro, or being kicked out, but that would just make matters worse: outside the euro Greece would go into a downward spiral, dramatically increasing the value of its euro-denominated debts and creating hyper-inflation. While it's hard to imagine any of these countries' governments defaulting on their debts, restoring their budget balances is going to hold back their economic growth for a long time and lead to higher long-term government interest rates around the world.