not share some very good thoughts.
{Yes, especially the cartoon...}
The Griz comment is interesting, about ARMs becoming fully amortizing.
THAT is a little known fact.
And, what the chart tells U.S. is that "Prime" RE loans are going to be the largest RE market sector this coming year.
The option ARMs are really not going to hit U.S. between the eyes until this time the following year.
Ugly..., really, really ugly.
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John, while your analysis is very good, there are some factoids about ARMs that you left out.
First, almost all of them, or at least the majority , were issued in the "Sand States" - Cal, Nev, Fla & Az. Second, they were issued during the "dead zone" - 2002 to 07 - therefore, they are almost ALL underwater, and deeply so. Third, the majority of all RE loans were "securitized packages" by Wall Street investment banks, where there is NO known "holder" - to talk to or negotiate with about any modification. And, most were originated by WAMU, Countrywide and Wachovia - now owned by Chase, BkOAmer and Wells. The Good News and the Bad News is that most of them are still being "serviced" by those same three banks.
Did you happen to read/see the latest Chase investor warning about their problems with RE loans? Buried in that news/SEC report was the fact that ALL of their WAMU portfolio is now underwater. Don't hold your breath.
May 16 08:35 PM
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Actually, the real issue with Option ARM's (the largest block in yellow above) is that when they reach the reset point they become fully amortizing. This means that the speculator (errr... home-owner) can no longer defer the interest on the loan to be paid later. The vast majority of the holders of these types of mortgages used them as a short-term financing vehicle with hopes that in time and with housing price appreciation they would be able to refinance into another mortgage later (or just flip the house).
These tools were typically used to finance homes in the mid to upper tier price levels, so while the Subprime crisis affected middle America, the Option ARM crisis will hammer the high-end housing markets (i.e. coastal California, North-east, Virginia, etc.) further.
With so many of these Option ARM mortgage holders underwater at this point, and not just a little underwater, they are typically just making the lowest payment available (as it is cheaper than paying rent for an equivalent home right across the street). They are doing this full knowing that when the reset hits, they will stop paying altogether and then get a free ride for another 24 months until the bank kicks them out.
May 16 10:11 AM
These tools were typically used to finance homes in the mid to upper tier price levels, so while the Subprime crisis affected middle America, the Option ARM crisis will hammer the high-end housing markets (i.e. coastal California, North-east, Virginia, etc.) further.
With so many of these Option ARM mortgage holders underwater at this point, and not just a little underwater, they are typically just making the lowest payment available (as it is cheaper than paying rent for an equivalent home right across the street). They are doing this full knowing that when the reset hits, they will stop paying altogether and then get a free ride for another 24 months until the bank kicks them out.
May 16 10:11 AM
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Mortgages: The Second Wave
May 16, 2010
One of my favorite cartoons for the paranoid is a fitting companion for the graph that follows:
From the 5-Min. Forecast comes a recasting of a familiar graphic to those following the housing market:
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