November 26, 2007

In come the waves. The real nasty stuff is still on the way - get ready for the adjustable rate mortgage bomb

You know what's coming. There should be no surprises.

The subprime mortgage crisis is poised to get much worse.

Next year, interest rates are set to rise -- or "reset" -- on $362 billion worth of adjustable-rate subprime mortgages, according to data calculated by Bank of America Corp.

While many accounts portray resetting rates as the big factor behind the surge in home-loan defaults and foreclosures this year, that isn't quite the case.

Many of the subprime mortgages that have driven up the default rate went bad in their first year or so, well before their interest rate had a chance to go higher. Some of these mortgages went to speculators who planned to flip their houses, others to borrowers who had stretched too far to make their payments, and still others had some element of fraud.

Now the real crest of the reset wave is coming, and that promises more pain for borrowers, lenders and Wall Street. Already, many subprime lenders, who focused on people with poor credit, have gone bust. Big banks and investors who made subprime loans or bought securities backed by them are reporting billions of dollars in losses.

15 comments:

Princess Mononoke said...

This article from the LA Times gives credence to everything Keith and HPer's have been saying all along! Kudos to all...

"Bears are becoming harder to ignore"

http://www.latimes.com/business/la-fi-petruno24nov24,0,7343480.column?page=1&track=ntothtml&coll=la-tot-business

GreedKills said...

Haven't you noticed that they are now just putting out the "abbreviated" chart?

It's that second option ARM hump that worries me...especially due to the fact that so many people are paying the minimum amount.

This is just the first "whoop" on the roller-coaster ride down.

GreedKills said...

Hey Keith...

care to share with us which puts and shorts you are considering from the posters input on the other thread?

I liked long KFT and puts on CCL

Anonymous said...

Save the box your new flat screen TV came in. You may need it for shelter soon, 0% down, ARM subprimers.

The Hog is out of the tunnel and the Fat is in the Fire. You are doomed.

Step up for your beating. The line forms on the right.

Happy Holidays!

bob said...

This is like a Crocodile Dundee scene. "That's not an ARM reset chart. THIS is an ARM reset chart!"

Notice that the misery comes in multiple waves with the agony going all the way out to 2011 when you count Alt-A (liar's loans) ARM and Option ARMs (aka "exploding neg-am ARMS").

Anonymous said...

I see soup lines coming to a neighborhood near you. People who are able to make the increased payments won't have enough money for food and utilities. Maybe they can pick up a second or third job. The American Dream has become a nightmare for the entire country.

Princess Mononoke said...

Yep, the next two year's we will all be observing fish out of water! What's happening right now is nothing compared to what is coming down the road...

It will not be a pretty picture to say the least.

Anonymous said...

The interesting part of the reset waves and schedules is that some of this is variable. There are loan products that have triggers. I beleive there is some data that some of these resets are occuring way before the original forecasts.
This is accelerating the foreclosures even more.

DaveO said...

But I thought the mortgage problems only affected a minority of the nation. According to Lawrence Yun, “Some metro areas are hot while others are experiencing localized problems,” he said. “The report also shows that home prices in the vast midsection of America, from the Appalachians to the Rockies, are affordable and, perhaps, even undervalued.”

The majority of the country, the mid-section, will easily pick up the slack. Who better to know than the head of the venerable National Association of Realtors? Is he right or wrong?

Anonymous said...

LOL!

Well, there was your first mistake-Listening to ANYTHING out of Yun's yapper, or the NAR in general. I hope that all Americans and our Govt. learns the brutal lesson of leaving such an important part of our financial system in the hands of commission whores and the thieves of Wall Street.

This of the fruit of Bush's "No Regulation" mentality...and our country has never been in worse shape in its history...never. It's a damn shame to see the greatest country in the world go down the crapper like this...a damn shame.

Montpellier said...

Anonymous - you aren't kidding - a lot of folks in my home neighborhood are already underwater, and making regular withdrawals from the Foodbank...we try to put a little in all the time...every trip to the grocery store.

So, at this point...will we be seeing housing deflation at the same time we see massive inflation everywhere else?

Way to impoverish the modern American debt-serf.

Anonymous said...

care to share with us which puts and shorts you are considering from the posters input on the other thread?

I'm short TIF, COH, etc.

I say it again: If you think that subprime will be bad, wait until Alt-A starts to hit the fan.

Anonymous said...

mail lady back, today I worked so many foreclosures notices (these were the one's that are RTS (return to sender)one person who has many business names but all under one owner name must have had at least 50 foreclosure notices. I assume this person bought lots of homes under different company names and now they are all being foreclosed on. That was the second time I saw that but last time it must have been near 100. What were these people thinking, did they really believe housing would go to a million dollars for a 50 year old 1000 square foot house. Are they crazy or did they get swept up in the game of it all. I don't just see one city I see many cities and if the foreclosures slowed down it didn't slow down long it's starting to pick back up again it is just a terrible shame. Are we sure we aren't in a twilight zone segment and at the end of show we find out people were playing a game of monopoly. I see no good coming of any of this, if you can't afford to pay your bills you just quit paying them screw a credit score. Do banks have a credit score so that customers can tell if they should open an account with them. I see a lot of homeless families especially mothers and children in the making and in the end I know some one making quote unquote 6 figures as if that is the only point of living, because they conned someone into buying a house they couldn't afford and then leave them homeless, surely has a place in hell ready.

Mammoth said...

Excellent Post, Mail lady. Thank you for this insight into what's REALLY going on!

What you are seeing, in your daily work, is a live-action "litmus test" and pulse check of this nation's economy.

And right now, that pulse feels pretty shaky...

-Mammoth

Anonymous said...

I'm just really glad i sold in 2004, and have rented an apartment since. However i don't know if i'll still have a job in the Phoenix area after all this hits the fan. We'll see