New wave of mortgage resets in 2010-12

S

short&naked

Anybody saying that the worst is over for housing and/or the economic in general simply has not done their homework. While the next wave of remaining teaser rate mortages to reset are mainly of higher grade than the sub-primes, the fact that this next phase will occur at a time when the U.S. consumer has been weaken substantially will certainly add salt to the wounds. Not to mention any losses that might be associated with the securitization of these potentially dodgy debts.

Also, those who are preaching to going long housing now (predenting to be the smart money) will most certainly get reamed. Another wave of mortgage defaults could substantically increase the supply of housing and send prices to new lows.



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Quote from coolweb:

commercial real estate is the next big crash, many banks have 30% loans for commercial.
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I work in commercial property and the crash has already happened. In the UK atleast.

The index of commercial property prices is down circa 40% from the mid-2007 peak.

The good news is the market appears to be bottoming out. Investment yields are now very high - prime yields are now 8% plus - and funds/institutional investors and opportunity funds are looking to buy again which has put a floor under prices.
 
Very interesting,
If unemployment remains high, that is a recipe for disaster in 2010-2011.
And the Alt-A crowd can hurt consumer spending much more than the subprime crowd.
 
Question .... when these ARM rates are reset, isn't it pegged to the fed rate + some amount, which is currently quite low?
 
Quote from promagma:

Question .... when these ARM rates are reset, isn't it pegged to the fed rate + some amount, which is currently quite low?
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I believe you are correct on the option adjustable rates. In fact, this might tell you when the FEDs would even consider raising interest rates and might help timing the USD.

The Alt-As are the ones I am eying as potential trouble makers.
I question is: Where these offered with supressed teaser rates or plain vanilla? Considering we are close to 10% unemployment...
 
Its not that simple w/option arms. The rate is what the rate is - which is currently quite low. The resets refer to the fact that at some point, foiks will no longer be allowed to make just the minimum payment each month (which is often less than an interest only payment), but will have to pay full interest and principal. This could double the monthly payment and send many into default.
 
the alt-a and even prime rates are alarming. How old is this information and hasn't there been proactive steps to ensure these rates don't kill the banks balance sheets?
 
Quote from matgallis:

the alt-a and even prime rates are alarming. How old is this information and hasn't there been proactive steps to ensure these rates don't kill the banks balance sheets?
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All the proactive steps have been for government to take over the healthcare!! They just know that if they take over healthcare everything else will be alright! Oh, and they threw massive amounts of money at the banks to get them lending again but banks are holding on to it to buy failed banks!! They aren't stupid enough to start lending like crazy in this economy, with this administration. That's zero for two for the admin so far regarding the economic crisis.. oh wait, taxes have to go up to support their policies so it looks like three strikes on the economy.. three strikes and they are out!! [crowd roars]

It's possible that banks will be lending [re-fi'ing] again when the Alt-A shtf but it might not be enough to make a diff.. time will tell...
 
Looks like a W shaped recovery. Over the past 4 years there has been a high correlation with the SP 500 as it relates to mortgage reset. Market swings have been exacerbated to the down side when you have had a large amount of low credit quality tranches resetting. With high unemployment, the credit quality of all credit tranches in these MBS is rapidly deteriorating. This points to fact that the Fed can't raise rate and points to a period of high stagflation. Employment numbers need to rise rapidly to have any chance of adverting new lows in the market. Sure there will be artificial stops in place by central bankers, but that will only lead to higher inflation. Plus with the surge in productivity, companies aren't looking to rehire. This can all be adverted with lower taxation and pro market policies, but the likely hood of that is zero. Any significant recover will come after 2012.
 
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