Why we haven't hit the bottom: Alt-A and Option ARM Mortgage Resets are coming

D

daveportman

You can watch the video from 60 Minutes here: http://www.newmogul.com/item?id=7196

Well well well... if you're in the market today, you're a fool who's just waiting to lose their shirt. To me, this looks like a perfect dead cat bounce! Looks like these new mortgage defaults will provide as big or even a bigger mess than subprime mortgages have!

Just when you think that things are getting better, you realize that we're nowhere near the bottom. Truly scary video :(

I'm becoming more and more pessimistic as this sort of stuff comes out to light.
 
Did you hear the US is now $11T in debt? The market goes up every freaking day. I guess ARM's and trillions in debt don't matter. The bull is back. Climb on back, grab onto the horns.
 
+1.

Someone posted a chart on here I can't find at the moment with the amount of 5 & 7-year ARM's that are due to reset soon.

It'll essentially be the "next wave" of this mess in 2010, 11, and trailing off into 2012, especially if they reset high enough to be un-affordable like the 1 & 3-year "subprimes" did.

All this money being thrown at the "current" housing problem isn't going to solve a thing, if this next step plays out exactly or very similar to the current mess...which means we're in this recession for another 3-5 years plus.
 
I don't believe it will be as nearly bad as the doomsayers want you to think. The facts indicate otherwise and you need to realize that most people in charge of Gov. and most mortgage talking heads don't even really understand mortgages. This is how our Democrat Congress has passed 3 (yes, 3 in the last 1.5 years) so-called mortgage rescue bills that were all next to useless:

1) FHA Secure
2) Hope For HomeOwners
3) Geithner's newest piece of crap - can't remember the name but it is weak as hell also.

But the A-Paper resets won't be nearly as bad as subprime resets, because the Margin built into the loan (margin + index = adj. rate) is MUCH lower.

Most of the indexes that these loans are based on are now under 2% - so most A-paper ARMs that reset today will adjust down, not up - this remains true as long as rates stay generally low. And even if rates move up, most of them have adjustment caps of 1% per year. This won't break anyone, or very few. Conversely, most subprimes had 5% initial adj. caps.

A-Paper (including FHA & VA) ARMS have Margins of approx 1.75% to 2.75%, avg. = 2.25%, the most common.

Subprime ARMs were 6% to 9% Margins. You can do the math as to why people had such big payment shock on them. (again, Index + Margin = adj. payment)

As far as Pay Options, most of them are getting modified or extended in-house by the servicer, because they are the most toxic. And there really weren't very many of them anyway, less than 2% of all mortgages.
 
Quote from slapshot:

Most of the indexes are under 2% now so most A-paper ARMs will adjust down, not up - as long as rates stay generally low. And even if rates move up, most of them have adjustment caps of 1% per year at most. This won't break anyone, or very few.
More...

Hum...would be true if loan agreements wouldn´t have an adjustment / cap clause prevailing them falling below certain thresholds. That´s how many U.K. borrowers have been "trapped". Don´t know exactly about the situation in the U.S. But here is a website tracking loan performances - mortgage related :

http://www.loanperformance.com/pressreleases/LoanPerformance_HPIDec08v1_021809.pdf

MEDIA ALERT: February 18, 2009
Residential Property Values Fell $2.4 Trillion During 2008 Based on First American CoreLogic and LoanPerformance Home Price Index Analytics
Based on full December 2008 home price data, First American CoreLogic reports:
o In December, national housing prices fell 11.1% from a year ago. As of the end of 2008, the total value of residential properties was $19.1 trillion, down $2.4 trillion from $21.5 trillion in December of 2007.
o Home price declines have accelerated the last few months due to the rapid geographic diffusion. As of December 2008, more than 700 CBSAs or nearly three-quarters of all metropolitan markets were experiencing home price depreciation, up from 254 markets in December 2007 and 394 markets in June 2008. The number of metropolitan markets experiencing price declines is by far the highest ever.
o Since US home prices peaked in July 2006, they have declined 19.3% on a cumulative basis and are currently back to the lowest price level since May 2004.
o California continued to lead the way, declining 26.9 percent from a year ago, but Nevada (-26.5%) is closing the gap, followed by Arizona (-21.1%), Florida (-19.5%), and Rhode Island (-19.0%). The largest acceleration in home price declines during the fourth quarter of 2008 occurred in Maine, Pennsylvania, Arkansas, Oregon and Rhode Island.
o The supply of housing inventory remains very high relative to sales and given the rapidly deteriorating economy, prices are expected to decline in 2009 and 2010, but at a more moderate pace.
 
The far bigger problem is all of the people that are upside down on their houses and stuck in a some-what high fixed rate, say 6.5 or so. This is a whole crapload of people that can't re-fi becuase their house won't appraise, and our dumbshit government hasn't figured out we desperately need Conforming Streamline loans (no appraisal or income check, just the same balance at a lower rate)

These people are aware that they can go rent a house for 2/3 what they are now paying for their mortgage, on a house they are buried in. So they have no incentive to stay in the house when times get even a little tough.

But if you allow them to re-fi to a 4% fixed, you'd have most forclosures stopped right there. They won't bother to foreclose because their housing payment will be about the same as renting, so they may as well stay.

Plus it would put $200 - 400 in natural stimulus money to spend in their pockets each month, without coming from the taxpayers.

But if they are 1/3 upside down AND their payment is too high because they can't re-fi cheap - instant foreclosure.

But our current Administration is largely supported by the lawyers, who "guess what?" want to push loan modifications, it is a gold-mine for them right now. They are not terribly interested in seeing a quick, new loan origination solution. They want it to drag on for years of legal fee bonanzas.
 
Quote from ASusilovic:

Hum...would be true if loan agreements wouldn´t have an adjustment / cap clause prevailing them falling below certain thresholds.

More...


A Paper loans almost never have a floor rate minimum that is higher than the margin amount. (Sub-primes did.)

If the index that the loan is based on actually went to zero, the adjusted rate will only be whatever the margin is (within prevailing adjustment amount caps, they work both ways)

(At least in the USA, I cannot speak for UK. )
 
Quote from slapshot:

I don't believe it will be as nearly bad as the doomsayers want you to think. The facts indicate otherwise and you need to realize that most people in charge of Gov. and most mortgage talking heads don't even really understand mortgages. This is how our Democrat Congress has passed 3 (yes, 3 in the last 1.5 years) so-called mortgage rescue bills that were all next to useless:

1) FHA Secure
2) Hope For HomeOwners
3) Geithner's newest piece of crap - can't remember the name but it is weak as hell also.

But the A-Paper resets won't be nearly as bad as subprime resets, because the Margin built into the loan (margin + index = adj. rate) is MUCH lower.

Most of the indexes that these loans are based on are now under 2% - so most A-paper ARMs that reset today will adjust down, not up - this remains true as long as rates stay generally low. And even if rates move up, most of them have adjustment caps of 1% per year. This won't break anyone, or very few. Conversely, most subprimes had 5% initial adj. caps.

A-Paper (including FHA & VA) ARMS have Margins of approx 1.75% to 2.75%, avg. = 2.25%, the most common.

Subprime ARMs were 6% to 9% Margins. You can do the math as to why people had such big payment shock on them. (again, Index + Margin = adj. payment)

As far as Pay Options, most of them are getting modified or extended in-house by the servicer, because they are the most toxic. And there really weren't very many of them anyway, less than 2% of all mortgages.
More...
I would have to disagree... If what you say is true, why is it that Alt-A paper has been trading at cents on the dollar for a while? The mkt clearly also disagrees with you that refi is gonna be a walk in the park, reason being that the index that will be used will not be anywhere near LIBOR or Fed Funds. Think about it, if I am a bank and I have to refi at 120% LTV, am I gonna give you 3 - 4% rates? Fuhgettaboudit.

Not only that, but Alt-A is, in fact, potentially a lot more toxic than subprime. At least the latter is WYSIWYG, whereas AltA can be anything.

Obviously, everything changes if the govt forces banks to refi, regardless of LTV.
 
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