A tanking mortgage industry might be a precursor to an impending recession. There has been lots of turbulence on Wall Street lately with the Dow falling by hundreds of points day after day. The cause of the trouble isn't on Wall Street, though, but more likely on your own street. During the past few months the nation's biggest banks and brokerage firms have announced huge losses on their mortgage investments. So far, companies like Citigroup, Merrill Lynch and Morgan Stanley have announced more than $33 billion in investments that are now worthless. These institutions bought up millions of mortgages from local banks where people actually get their home loans. They bundled them together to sell to investors around the globe. But as more homeowners see their low initial payments rise as adjustable rates increase, foreclosures have jumped to record highs. As these home loans have gone bad, so have the mortgage-backed securities. The impact could be much worse. With some economists suggesting there could be hundreds of billions more in future losses. If that occurs the US economy could land in a recession.
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