August 08, 2007

Think it's bad now? You should see the wave of mortgage resets that's about to come crashing on to US shores

The Herald Tribune had a great piece on the wave of payment shock loans resetting in the next couple of years. We're just getting started folks. When this is all over, we'll be shocked at how far home prices dropped, and how many families lost their homes.


You owe it to yourself to read the article. And get ready.

Mortgage renewals set to prick U.S. property bubble

The mortgage meltdown has arrived at something of a turning point.

So far, the loans that have gone bad were among the worst of the worst. Some were based on outright fraud, either by the lender or the borrower. In many cases, buyers were never going to be able to make their monthly payments and were instead banking on a rapid appreciation in home values.

The peak month for the resetting of mortgages will come this October, according to Credit Suisse, when more than $50 billion in mortgages will switch to a new rate for the first time. The level will remain above $30 billion a month through September 2008. In all, the interest rates on about $1 trillion worth of mortgages, or 12 percent of the U.S. total, will reset for the first time this year or next. A couple of years ago, by comparison, only a marginal amount of mortgage debt - a few billion dollars a month - was resetting each month.

So all the carnage in the mortgage market thus far has come even before the bulk of mortgages have reset. "The worst is not over in the subprime mortgage market," analysts at JPMorgan recently wrote to the firm's clients. "The reason for our pessimism is that loans originated in late 2005 and all of 2006, the period that saw peak origination volumes and sharply decreased underwriting quality, are only starting to reset in large numbers."

It isn't hard to figure out what will happen when buyers who were already stretching to afford a house are faced with suddenly higher payments. Many will manage. They will cut back on spending, or refinance their mortgage and get a new one they can afford.

Others, like the buyer I interviewed two years ago, probably planned on selling their homes after a few years all along. For them, the artificially low initial rate was a no-lose proposition.

But there are also likely to be a shocking number of people who lose their homes.

27 comments:

area 51 said...

Gotta remember one thing though....
These numbnuts will still go out and buy Chinese junk and eat at McDonald's to keep their endorphins up.

They'll still buy IKEA furniture to furnish their subsidized apartments.

And even the lowest, jobless gangsta ghetto dawg has a cell phone, iPod, and Nikes.........

Don't think the economy will tank.

doctor bernanke said...

I personally think that if the FB's would do as Cramer said and abandon their overpriced homes, the economy would be better off. Instead of throwing good money after bad, trying to pay for a depreciating asset, they should just abandon the money pit and go back to renting for half the monthly cost. They would have more disposable income to help the economy. They would have more money to invest or save.

tabasco said...

In other words, this is gonna get ugly.

Anonymous said...


And even the lowest, jobless gangsta ghetto dawg has a cell phone, iPod, and Nikes.........

Don't think the economy will tank.


Well, of course it will. A cellphone, iPod and Nike's aren't made in the US.

But mary jane is.

Anonymous said...

Great rental rates in Florida now.

Of course you might have to chase homeless squatters out of your space.

Anonymous said...

Real ugly.

Anonymous said...

you imbeciles have been crying doom and gloom for years...you were wrong then and you are wrong now....oh sure some ghetto trash will lose their homes...big deal....hey put $0 into it and will walk away with $0 after foreclosing. Whoodeshit, like that's going to affect me.

Anonymous said...

And even the lowest, jobless gangsta ghetto dawg has a cell phone, iPod, and Nikes.........

=========

Nikes? The 1990s just called and they said stop impersonating them

Anonymous said...

You have been saying "It's gonna get ugly" for years, now. Sure, prices have slipped 0-1% in many markets. But where is the crash? Where is the "ugliness"? You guys need to up your paxil medication, the gloom-and-doom prophesizing for years on end is not a positive way to spend one's time!

Anonymous said...

ghetto trash

------------

Please refrain from insulting your mother that way.

Anonymous said...

nikes are still verry popular in da chicago ghettos. oh yeah, add glocks to that list

Out at the peak said...

With the NY flooding today, this image is eerie.

stocksystm said...

From Gary Shilling via John Mauldin:

"But it will take longer than you might think for that negative influence (resets) to decrease.

We have just seen $197 billion of mortgage resets so far this year. That is less than we will see in two months (February and March) of next year. The first six months of next year will see more than the total for 2007 or $521 billion. This suggests to me that the number of foreclosures is due to rise dramatically from the already high current levels, putting more homes into a weak housing environment."

Shakster said...

It's already ugly,and will get worse.

Anonymous said...

Fugly!!

Agent #777 said...

Anon @5:18 PM made me laugh hysterically!!

It appears that the Iraqi Information Minister has a new gig!!

DrNo said...

Anonymous said...

You have been saying "It's gonna get ugly" for years, now. Sure, prices have slipped 0-1% in many markets. But where is the crash? Where is the "ugliness"? You guys need to up your paxil medication, the gloom-and-doom prophesizing for years on end is not a positive way to spend one's time!


Oh... this is gonna be fun. I don't even know where to start. "It's gonna get ugly" ? Put down your pogo stick and look outside, it IS ugly. You obviously didn't read the article, it's gonna get FUGLY in October. Real estate is local except when some anonatroll needs a statistic then it's always the lame 1% national #. Well, clownshoes, in my county, foreclosures are up over 1000%. In my town of 30,000 people, we have 680 homes in foreclosure, the empty ones are being gutted for the copper. House prices in some areas are down 50% from Dec.! Hordes of wetbacks sleep in the parks, crapping on the lawn and bathing in what used to be a kiddie wading pool. All of my construction worker friends are out of work and mostly drunk and pissed. That's ugly, and it's just beginning.

Your like the guy standing at the bottom of the mountain laughing cause the guy half way up is getting wiped out by the avalanche.

The kicker though was this:
"the gloom-and-doom prophesizing for years on end is not a positive way to spend one's time!"
What a soft head! You just admitted that you have been coming here for years, "wasting" your time reading from the Tao of Keith! You should have to pay for your tuition troll. Send Keith a check for your squandered education, then go back to trolling the farm sex forum.

Anonymous said...

Ugly?

Fugly?

Fugugly?

Anonymous said...

Fortunately, for those who "lose their homes", there'll be plenty of bargain-priced rentals nearby.

Good chance to save some money, regroup and buy again when homes are trully affordable.

Anonymous said...

Once these people are out of their overpriced homes and into affordable rentals, they'll have a bit more extra $$ each month to feed into the economy.

Seriously, I know someone who's barely eating right now just to afford the mortgage on her overpriced sh@tbox in Seattle.

Her mortgage hasn't adjusted yet, but when it does, she'll have to let go.

Then she can get herself into a nice rental and start eating again - even have extra cash left over for Starbucks, movies, and clothes!

People are dumb, rich guys are smart said...

You are of course assuming that the banks will continue to sit idly by, and let all of these mortgages fail. I know that a few of the smart hedges right now are purchasing some of the paper for 30 cents on the dollar. Then they turn around and contact the homedebtors. They say "Hey you have been making payments consistently for x months, we will just keep the rate the same and not reset, or we will modify the loan terms and just keep paying what you have been." Ordinarily this would trigger a mark to market by the original mortgagor, but since the hedge got it at 30 cents on the dollar, they have just made bad paper relatively decent paper, and worth 50 cents on the dollar. Hedge made 20 cents, the homedebtor stays in the house, one less REO and one less home to hurt the market. Now of course there will be people that are beyond help, but I certainly think this is the more plausible conclusion to this mess. I cannot see this opprotunity being missed by other hedges and banks - particularly Fannie Mae, once it is apparent that this is working.

Anonymous said...

Another appraiser here. All you guys who say that everything is great and prices aren't dropping and the market will go on as usual don't have a clue. I work in one of the moderate risk areas of the country and our business is down by 2/3rds. If you're not in the business and don't know what the hell is really going on then STFU. Brokers are calling us daily saying we need to hurry up with an appraisal before a program is cancelled or crying because we killed their deal with a "low" appraisal. Things have just started changing in many markets and with the new lending crackdown, expect the market to deteriorate significantly faster than it has thus far.

Anonymous said...

I think the entire U.S. economy has been "marked to model" for the last 20 years. We're about to find out what we're really worth, "marked to market".

Right now I'm trying to buy a hole that I can crawl into, and pull in after me. Cheap property, propane generator, solar, wind and enough land to grow more fruits and vegetables that I can use.

I only hope that the Chinese and the Indians have some cultural or social flaws as bad as our own that even the playing field instead of leaving us in the dust.

Anonymous said...

"They'll still buy IKEA furniture to furnish their subsidized apartments."

I don't think that $20 coffee tables from Ikea or iPhones will rescue the US economy from this financial Armageddon. Not even if you ad a couple of Krispy Kreme doughnuts.

Anonymous said...

"Then they turn around and contact the homedebtors. They say "Hey you have been making payments consistently for x months, we will just keep the rate the same and not reset, or we will modify the loan terms and just keep paying what you have been.""

You are assuming that everyone who got an exotic mortgage planed to live in the house, which is not the case. The majority of these buyers were flipping 2, 3, 4 properties and don't really care for better terms on the loans, if offered by hedge funds. They wanted to flip the homes but since there are no buyers anymore... And BTW, if the banks or your hedge funds are "thinking" to do something about it, they should have started already because huge cruise ships like that don't turn in a blink of an eye; it takes months. Sure, hedge funds, offer better terms so flippers and crooks can live rent free for a few months months and walk away from your new offering anyway. Hedge funds should just walk away from this mess and never look back. How can you offer better terms for millions of people who were making a living out of this insane housing bubble? Even if hedge funds bought that crap for pennies on the dollar, those "buyers" won't have any money to continue to pay for the new loans since they are out of work. The job market is not too bright for the flippers involved in the housing con game like construction workers, Home Depot employees, Realtors, mortgage brokers, contractors, appraisers, illegal immigrants, city workers, small business owners who depended on all these REIC business, etc. You trolls talk like this crisis is due to your grandpa who lives in the same house for 30 years. Not really. Sure hedge funds, go ahead and dig a bigger hole by giving better terms for people who don't intend to pay back, but just stall another few months to live rent free.

Anonymous said...

Hey sheeple, another red flag:

Richest man in the world is not American anymore; he's Mexican.

Can't you guys see that this country is going down fast? Vote for Giuliana and Mitt to really screw this country for good.

Anonymous said...

Funny how this MSM and trolls work:

Before the housing market was the catalyst of our "great economy", now the housing market is not really important for the same "great economy". What's important now are the "multinationals". Then the shills always contradict themselves by writing on magazines, like BusinessWeek for instance, low unemployment benefits the economy. If the unemployment rate comes higher on the next month, they say that it also benefits the economy. Which one is it? We live in Russia and we haven't realized yet! Everything is manipulated!