August 31, 2007

I don't think anyone knows just how bad this mortgage meltdown / ARM reset debacle is gonna be


In come the waves....

Millions of homeowners around the nation are now getting the news in the mail: The interest rate on their home loans is going up, possibly to double-digit levels.

The hardest hit are expected to be people who have less-than-stellar credit and cannot afford to make the new payments. An increase of several hundred dollars a month will force them either to get relief or to default. The prospect of significant and growing losses has already rocked Wall Street and shaken up the broader mortgage markets. And, concerned about the human suffering, policymakers are already searching for ways to help people out.

"The meltdown in the subprime market is the biggest threat to the housing market and the broader economy," says Mark Zandi, chief economist at Moody's Economy. com. "It is at the vortex of the problem."

Over the next several months, banks will be changing the "teaser rates" that homeowners received two years ago.

The peak for resetting loans will be in October, when the rates on some $50 billion worth of mortgages are likely to rise by 2 percentage points or more. This could mean a rise of several hundred dollars a month for many borrowers.

25 comments:

Anonymous said...

That is what the fools agreed. Their stupidity will result in a rapid burst of the bubble. Therefore hard working people who saved for a down payment, live within their means and have solid credit can now afford to own a home. So I do not see the problem.

Anonymous said...

the funny thing is that today's foreclosures were from late last year and early this year. the bulk are coming due next spring.

the government is pushing on a string because foreign investors don't trust us anymore. perhaps fannie/freddie can just insure all the all debt in the entire country, liars loans and all.

Anonymous said...

Could someone explain this to me.


If someone can only afford the teaser rate on a home, say 3.5 or 4.5% and fully leveraged themselves based on this monthly payment only to get themselves the biggest home possible on their Wal-Mart jobs.

We all agree that when the loan adjusts to the market rate of 6.5% or whatever it is now they will lose their homes to forclosure because they cannot afford the real payment on the house.


The question is how will this bailout work????

Will they just get to pay the teaser rate forever??

If so then I really want to see a second american revolution happen if my fixed rate 30 year responsible mortgage does not get lowered to the bailout rate also.

Anonymous said...

Looks like the worst will be in 12 months time - then time to buy fincancials and homebuilders and banks (those that are still standing).

Any comments?

Marky Mark

Salty Dog said...

“We’re not looking for an industry bailout or a Wall Street bailout. The focus here is on the homeowner.”

Whatever these clowns say, the opposite is always true.

Colonel Angus said...

In the words of the Captain in the movie 300.. the government should..

"Give them nothing but take everything!"

No taxpayer bailout.

A bailout is like giving a trust fund kid a new Benz after he totaled the other one with his stupidity and recklessness.

Anonymous said...

As I understand it, this won't let FBs keep their mortgages at the teaser rate forever - no FLs are gonna take a deal like that. What it will do is help an FB who occupies his property, is upside down or hasn't got enough equity to refi at a reasonable rate, and is facing an ARM reset to an outrageous interest rate. That person will be able to refi to a reasonable rate despite his/her FICO score, equity position, or whatever. He'll still be on the hook for repaying the loan. Some FBs will take this deal and will stretch for years to make the payments. Some who simply don't have the income to support even the lower fixed rate will end up in foreclosure, where they would have been anyway. In some cases where the refi would have to be done on an upside-down position, I think the IRS rule suspension is designed to encourage FBs and FLs to make a deal and do the refi on the new (lower) value and have the FL eat the loss. Many FLs will go for this deal if it's cheaper than foreclosure.

cannot make even the refi'ed payments will end up in foreclosure.

Anonymous said...

I thought that ARM's only reset to the current 30-year fixed rate.

example.

3/1 arm = 3 years at teaser rate, then the rest of the loan resets to the current fixed rate 6.5% and next year would rise further if the 30 year index rose as well.

(The risk being that if the fed raised rates more you could end up up paying more, example in 2009 if 30 year rate rose to 8.5% you would be stuck paying 8.5% also)


Do the arm mortgages really adjust to outrageous interest rates beyond the 30 year fixed rate at the time of adjustment?

Anonymous said...

THERE'S A CAT 12 SH*T STORM A COMIN' FOLKS. DUCK TAPE YOUR CORN HOLE AND PRAY SENATOR CRAIG AIN'T YO BUNKER BUDDY!!!!

Kenduffelsniffenspotzen said...

The hardest hit are expected to be people who have less-than-stellar credit and cannot afford to make the new payments. An increase of several hundred dollars a month will force them either to get relief or to default. The prospect of significant and growing losses has already rocked Wall Street and shaken up the broader mortgage markets. And, concerned about the human suffering, policymakers are already searching for ways to help people out.
--------------------------------
When the yelling and the screaming is over, only the bankers will be bailed out.

Anonymous said...

Anonymous said...

As I understand it, this won't let FBs keep their mortgages at the teaser rate forever - no FLs are gonna take a deal like that. What it will do is help an FB who occupies his property, is upside down or hasn't got enough equity to refi at a reasonable rate, and is facing an ARM reset to an outrageous interest rate. That person will be able to refi to a reasonable rate despite his/her FICO score, equity position, or whatever. He'll still be on the hook for repaying the loan.
--------------------------------
Enter......the 100 year loan.

Anonymous said...

.




Wait for 'The' anouncement on Oct. 15, 10am est



Your not gonna believe this one!









.

Anonymous said...

i've heard about that

az_mtb said...

Anonymous said...

I thought that ARM's only reset to the current 30-year fixed rate.


WRONG.

The 30 year traditional, fixed mortgage rates are set by the 10 year U.S. Treasury note interest rates. They track it very closely. However, a 3/1 ARM would track the LIBOR (London Interbank Offered Rate) index, which is not even a U.S. entity.


http://tinyurl.com/rud49

Random_name said...

The we are here arrow on the graph needs updated. 1 is suppose to be January of 07, so we should be about to tick over to 9. Closing in on the peak.

Of course the one thing that graph can't tell us is how much of a shift will occur in the second wave. The second wave of that is when most of the Option ARMs are scheduled to reset, but if people have only been paying the minimum they could hit the 110% limit on the loan earlier. Thus there may be some shifting of the second wave.

Anonymous said...

The libor looks like its 1% lower than the 30-year fixed rate.

How would this be so much worse than an arm adjusting to the 30-year mortgage rate.

I still don't see how people end up paying "outrageous" interest when the arm adjusts.

If I am missing something please educate me. Thanks for your patience.

Anonymous said...

ok, what happens october 15 ?

Anonymous said...

October 15 ? please explain

Anonymous said...

sorry for the repeat

Greg said...

http://en.wikipedia.org/wiki/Adjustable_rate_mortgage

All adjustable rate mortgages have an adjusting interest rate tied to an index.[1]

Six common indices in the United States are:

* 11th District Cost of Funds Index (COFI)
* London Interbank Offered Rate (LIBOR)
* 12-month Treasury Average Index (MTA)
* Constant Maturity Treasury (CMT)
* National Average Contract Mortgage Rate
* Bank Bill Swap Rate (BBSW)

Shakster said...

Just Pass the GodDamned POPCORN!
When this shit gets to the climax ,I just wanna kick back ,and watch-em burn.Hahahhahahhahhahhahahhaaaa.
Good movie so far.

Anonymous said...

If you had good credit you could have gotten a fixed rate mortgage with a 1-3 year teaser rate. That new rate will be slightly higher to make up for the initial lower rate. However, most of these resets are subprime with people who can barely afford the teaser rates. When the subprime rate resets to what a deadbeat subprime borrower should be paying they will not be able make the payment. Subprime rates are traditionally 2-6% higher than good credit 30 year rates.

the other trader said...

Let me guess, October 15th will see no rate cut?

But that is just a guess.

Is that the day of the Fed meeting?

To answer a few questions;

For adjustable rates, there is no "set" standard for rates. This is (was) an unregulated area, so whatever the mortgage contract states the rate is (index + premium), that is what the rate will be.

It is pegged to some index after the teaser rate expires. There is usually 1 to 5 percent added to that rate, and that is what the rate will be for the rest of the contract.

The worse the risk, the higher the the premium.

Unregulated markets ALWAYS end up this way.

I am starting to lose my faith in capitalism.

And to Marky Mark,
errr, I think the turmoil will be ALOT longer than 12 months. History shows this could grind for a long time before any type of "real" recovery happens.

If I had to advise, I would tell you to go for foreign funds.
The dollar depreciation that is going to occur from these "bail outs" will be massive. Huge gains to be had just from the the dropping dollar.( I have bets in Asia, and the BRIC connection).
THEN, if you invest in a great company on top of that, huge gains when they are converted back to the U.S. Dollar.


And do not worry. The bail-out money will be allocated to COMPENSATE the banks from the loss of lower rates (breaking contracts). Most homeowners will continue to default due to the higher cost of living (that is still accelerating). It will NOT be the people who get the money, just the Top-Industry yes-men.

Oh, and one last thing, all this money that was used to "bail-out" the world markets in the last few weeks? It was allocated just to stop liquidation, nothing else.
This stopped the sell "demands" in the derivative markets, and stopped the Yen carry trade from unwinding.
Oh, and that "loaned" money will not be paid back. Even if they say they did, do not believe it.

the other trader said...

Another thing not many are thinking of, does anyone realize the paperwork that is needed to LOCATE these mortgages? They have been chopped, diced and tossed.
There will be ALOT of mortgage reviewing, ALL OVER THE WORLD, just to figure what is where.

Bet some NASTY info, from foreign countries, will be released concerning the massive fraud that has been happening. They will uncover and publicize some CRAZY loans, just watch.

Anonymous said...

ARMs are resetting to 8%, 9%, or even 10%. Lenders give away money on the front end with the expectation of making it up and then some on the back-end.

Obviously a 3% teaser rate is below market, who would really lend you money at that rate and then let you just pay them off in a re-fi? That would be like giving you free money since you could put it in the bank at 5%. To protect themselves, they put on a pre-pay penalty so that they don't get screwed if you pay off early.

Now, as to why the ARM rate is so high, well it really depends on the ARM. Once again, the lender can lend money to someone with a good FICO score, 20% down, and full doc, for say 6.5%. So why the hell should he lend it to someone with 0 down, a crappy FICO, and no doc for the same rate? Obviously he needs more vig to compensate for the fact that the second loan has more risk. So the "real" rate he needs to charge is like 8-10%.

Now, there have been times when ARMs were potentially helpful to a borrower. This was popular back when the yield curve was more normal-looking and the long-term interest rates were high because of inflation worries. At that time, you could get an ARM and the interest rate was lower because it was tied to the short end of the yield curve. The risk, of course, was that rates could rise. Note that I am talking still about a borrower with full doc, good FICO, downpayment, etc. ARMs were helpful back when long rates were sky-high.