Excerpt:
The peak month for the resetting of mortgages will come this October, according to Credit Suisse, when more than $50 billion in mortgages will switch to a new rate for the first time. The level will remain above $30 billion a month through September 2008.In all, the interest rates on about $1 trillion worth of mortgages, or 12 percent of the U.S. total, will reset for the first time this year or next. A couple of years ago, by comparison, only a marginal amount of mortgage debt - a few billion dollars a month - was resetting each month.
So all the carnage in the mortgage market thus far has come even before the bulk of mortgages have reset. "The worst is not over in the subprime mortgage market," analysts at JPMorgan recently wrote to the firm's clients. "The reason for our pessimism is that loans originated in late 2005 and all of 2006, the period that saw peak origination volumes and sharply decreased underwriting quality, are only starting to reset in large numbers." * * *
This slow motion train wreck is just getting started.
This is misleading. It gives the impression that the thing implodes all at once when the rates re-set. Not true. It’s going to be a slow leak and then a very fast one.
Like the character in the Hemingway novel who answers the question of how he went broke, “Two ways,” he says. “First slowly, and then very fast.”
Tip of the iceberg.