Second larger wave of mortgage resets set to swamp the economy

[Subdivisions]

The previous wave of subprime mortages was shallower and shorter lived than this one will be. Strap in, it's about to get wild.

[anigbrowl]

1. I'm not so sure about that

Basically, because people have adjusted somewhat to the new economic conditions. So people who had an ARM mortgage have had time to see this coming and some of them will have used it to get their finances in order in the meantime. It will still create problems, but not, I think, in direct proportion to the dollar amounts outstanding compared to conventional mortgages. Perhaps half as much, though that would still be no picnic.

[CoffeeCat]

3. But the only way out of the ARMS...

...the interest-only loans and the other creative-financing disasters---is to refinance. Since
the economy tanked, it has been extremely difficult to re-finance. Banks have been incredibly
stingy. If your credit isn't sterling, chances are you were denied. And let's be honest--many
people who took out these kinds of loans might not have perfect credit right now. Many people
have taken hits on their credit rating--due to unemployment and other financial challenges.

Another issue that makes qualifying for refinancing a difficult proposition--is falling home values.
Houses have lost value, and many people owe more on their home than it is worth. Others have
very little equity. These factors also make refinancing nearly impossible.

I know so many people who are stuck.

If anything, I think there are more negative economic factors now--that will only amplify
mortgage failures. Since the first bad round--many have lost jobs or had their incomes
cut. So many people are hanging on by a thread, but they hide their bad circumstances.

[anigbrowl]

9. Quite so, but refinancing isn't the only course

What I'm getting is that people who paid attention to the first wave of the housing crisis have had a couple of years to put together plans to sell their house, or clear other debts or save. Not that everyone is able to do such things, which is the problem. But not everyone with an ARM is necessarily up to their ears, and those who don't have their heads in the sand have had time in which to get prepared for the reset date - maybe decide not to replace their car, or cut back on their discretionary expenses, pay off and cut up their credit cards, or whatever. A problem you can see coming is one that's a bit easier to deal with.

[HCE SuiGeneris]

6. Your optimism is admirable, albeit unwarranted.

The ARMs are nothing but a legal (sort of) form of loan sharking. Those encumbered by these loans will be VERY sorely tested to meet the new payment demands. As was mentioned in the previous response to you, the loss of equity in the last 3 years with declining home values will make refinancing impossible.

[autorank]

8. Structureud chaos

From - Too little too late - The Money Party at Work Feb 19, 2009 by Michael Collins

http://www.apj.us/index.php?option=com_content&task=view&id=2226&Itemid=2

The nonprime home lending market consists of 2.2 million "Alt-A" home loans to those with good credit who chose "innovative" adjustable rate mortgages plus 2.7 million subprime home loans to those with marginal credit who, often times, used funds to purchase a first home. The total 4.9 million nonprime loans were used to purchase homes that house around 12 to 15 million people.



The total balance due for the five million "nonprime" loans is $1.2 trillion as of December 2008. The loans at risk (60 days overdue) have a balance due of $160 billion (40% for Alt-A's, 60% for subprimes). Preserving home ownership for those at risk in just the nonprime financed homes will eat up the proposed $75 billion package and reduce the Fannie-Freddie funding increase from $200 to $115 billion dollars.

To understand how the future will look, let's examine what happened in the nonprime market in 2008. The following graph shows the risk in just the nonprime loans. Traditional fixed interest loans are less vulnerable at the moment but when GM and Chrysler implode and as small businesses disappear, traditional loans will show up at risk in droves.



The nonprime lone market has 1.2 million loans at risk of entering foreclosure due to substantial arrears in payment. What will change to allow these people to catch up? There's no credit line left, in most cases, and no room for a "second" in a home loan where the current value is less than the loan value.

When a nonprime loan "resets," it adds an average of three to six points to the loan payment for Alt-A's and subprimes respectively. It's quite a shock.


"Average Margin" is a specified amount added to the
rate of the mortgage when it "resets" a few years into the loan.

This chart shows the percent of nonprimes resetting in the coming years. In 2009, 630,000 combined nonprime loans will reset to a substantially higher interest, 320,000 in 2010. By 2011, all but 3% the subprimes will have reset. However, starting in 2011, nearly 40% of the Alt-A's, 850,000 in all, are scheduled to reset. Families and individuals in these homes will have a home loan well over the assessed home value and a substantial increase in interest payments. They'll be in a recession economy.

[CoffeeCat]

2. I wouldn't be surprised if we see...

...more people walking away from their mortgages. People are pissed. There's been
enough time to see that the banks got away with a heist in which our money was ripped
off. They didn't use those funds to "unfreeze" any "credit markets." What a crock.

We all see Wall Street soaring as the little guy suffers, and our politicians
kow tow to the corporations. We see clearly now--that we don't have seat
at the table. I think many are just doing to "drop out"--default on that
mortgage, stay in house for as long as they can and then rent an apartment
and try to ride out whatever comes next.

[msongs]

4. wall street in collusion with our own government. whatta deal nt

[flvegan]

5. Swamp nothing.

Lenders, here's the deal. You like a performing loan. I know this (economics major with a lot of foreclosure experience in the field). Howsabout you level the terms. Play nice. Maybe you ask for 5%. You make money, the loan performs, folks get to stay in their homes. Toss the shit default to the back end. You'll never get it otherwise. Well, you won't. It's not a novation, so you've lost nothing.

OR, you can take tens of thousands of dollars into the graves with you.

Maybe you should have hired realists with an underwriting background to help you out.

THERE IS NO PROFIT IN AN ENDGAME LIKE THIS.

Aren't performing loans the basis for profit for these idiots? Stockholders like profit. Why do these idiots hate their stockholders?

:hide:

[tuvor]

7. That graph hurts my eyes. n/t