Subprime lending crisis and the export industry

What touted to be just an ephemeral event in the US economy, the meltdown in the subprime mortgage sector has also spilled off globally causing widespread credit crunches in Europe and Asia. If my memory serves me right, it was some two years ago when the real estate sector showed some signs or high levels of over-borrowings and delinquencies.   

Just a glimpse, it all started when some three or four years back when anyone (even with poor credit history) in the US could just buy real property with little or no downpayment at all. That's why they're called "subprime." Subprime lending is in a sense a facility offered to "second chance" borrowers and bears higher interest rates (being high risk) compared to borrowers under the "prime" category or those with good credit standing.

It was said to be a heyday in the property sector but most of the buyings came from the subprime which turned out to be later paying only the interest than the principal. And when lenders or banks started to raise monthly mortgage payments to force borrowers to pay the principal, defaults also began to spiral which later on caused share prices in the real estate property and financial sector to nosedive in the stock market furthering the dilemma of borrowers as to whom or where to sell their property to in order to pay off their indebtedness. Hence, what is clear now is that borrowers are unable and unwilling to pay as yet.  

It would seem that the problem is just entirely domestic but the case is not how it seems to be. As of December 22, 2007, The Economist estimated subprime defaults would play around US $200 to 300 billion in which $250 billion is said to be the potential loss major banks around the world would eventually incur. 

If you think that's just too far to reach our shores, you're too overconfident. In fact, the impact of the subprime lending crisis was already felt in our stock market early on this year only it was not quite evident due to a strong performance of the economy last year. But if you look at the charts now, the stock market remains sluggish as of late and if you ask any stockbroker around, they're on the wait-and-see or gloomy mode.     

But who cares about the stock market when you don't have the money to burn, right?  I think we should care about how our lending institutions should behave in light of the crisis. What is their outlook and how are they going to help out businesses in the face of a dampening US market?

The export industry is likely to get the most impact out of this crisis and at hindsight it was also the same industry that suffered the most when the dollar dropped significantly against the peso.   

When I spoke to an exporter friend recently, he says that none of the banks today wants to even talk to them anymore. He said that "as if we have leprosy that they dread us."    

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I would like to acknowledge our readers for sending their thoughts about my column on the proposal of Mayor Tommy Osmeña to ban private vehicles to ply on the city's major routes to ease traffic and to encourage more people (especially those who are used to their cars) to commute to help drivers cope with the rising prices of gasoline and improve their daily earnings. I didn't expect that many have come to support the idea not only to help drivers but also reduce vehicular emissions to the atmosphere.

I'd like to mention them here as I still have to find time responding to their emails: Engr. Allan Chan, Cebu City; Darwin Tormis, Queens, New York City, USA; Achilles Mendez, Bagakay Sibonga, Cebu; Dominador Lagundi, Iloilo City; Bernardo Ruizol, Mango Avenue, Cebu City; Jonathan Lerios, Cebu City and; George Garcia, Tagbilaran Bohol.               

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