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Mortgage Reset Time Bomb



November 19, 2007 – Comments (7)

Loan Resets

See the problem? Subprime will continue to whale on the housing market for another whole year. After that, things don't get any better. All those Alt-A loans? Do you think people needed no-doc loans because they were telling the truth about their income and earning power? Or do you think it was the only way they could buy more house than they could afford, but had to have because that's where prices were, and everyone had to "get a foot in the door"?

See all those option ARMs? Think people took those out because they were "sophisticated investors who needed solutions to cash flow" issues? Or do you think they took the option because they couldn't actually afford the real loan?

Anyone who tells you the mortgage and RE problem is over in a year is either trying to get a 6% commission, or he lives under a rock. 

7 Comments – Post Your Own

#1) On November 19, 2007 at 10:29 AM, retailsails (98.48) wrote:

Very nice!  Also, remember that more than half of all of those loans were securitized - there is very strict legal language in those deals and most of those loans will not be allowed to be modified - even though all of the talking heads speak of how it's in everyone's best interest to modify the loan terms, do you think the senior bondholders in those deals want to see whatever credit subordination they have disappear?

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#2) On November 19, 2007 at 10:49 AM, wingedcreat0r (43.12) wrote:

When I bought my condo six months ago, Coldwell banker said that they did not need any information from me thanks to my credit score (780). No income, no W2s, nothing. Just my sig.

I should note that Coldwell banker was willing to give me alot more than what I wanted, needed, or could afford.

Now, unlike some people... My loan is a 30 year fix rate with 30% down and no points.

Still, my parents said that if this was 1987, you would have to cough up almost a binder of documents.


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#3) On November 19, 2007 at 10:54 AM, Gtrinvestor (95.19) wrote:

Nice information... I have heard that Alt A would be the next shoe to drop, but didn't have the information you show above.

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#4) On November 19, 2007 at 10:58 AM, TMFBent (99.25) wrote:

Well, consider that Alt-A mavens Impac Mortgage Holdings and IndyMac have been absolutely KILLED because no one wants what they used to be selling. That reaction came because the losses in Alt-A proved to be much worse than anyone originally expected.

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#5) On November 19, 2007 at 11:00 AM, TMFBent (99.25) wrote:

Actually, upon looking at that chart, I think there might be a good chance of a sucker's rally or dead-cat bounce in 2009. See how the number of resets goes way down, before then we get to the crop of new crapola? I bet we'll see a less bad climate in 2009, and a lot of crowing about how the bottom is in, only to see things get worse when those option ARMs and Alt-A loans crest in the following couple years.

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#6) On November 19, 2007 at 12:05 PM, ByrneShill (81.75) wrote:

I don't think you'll see the dead-cat bounce. RE is sloooooooooooooooooow moving, so I think more crappola will hit the fan before anyone realises there has been some fresh air. Remember it's almost a year between the first missed payment and foreclosure. You might hear the sixpercenters (those who didn't starve to death) crow a bit, but that'll be it.

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#7) On November 19, 2007 at 12:34 PM, reddingrunner (92.29) wrote:

"Or do you think they took the option because they couldn't actually afford the real loan?"

Well, if interest rates go up we'll have serious problems.  But most of these are young people who will have more income (promotions, etc) in 2011 than they have today.  And they know this is coming so most of them will be rational enough not to bury themselves under a load of additional debts between now and then.  Most people use ARM's to buy the house today that they will be able to afford later.

This will depress consumer spending for a few years and then you'll see all that pent-up stuff-lust roar into life. 

Meanwhile, baby boomers aren't directly affected much and they are becoming empty nesters with no more college bills, no more mortgages to pay and lots of disposable income right about........................ now.

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