Also, what could really start a collapse are interest only loans being done for homebuyers that use this product because it's the only way they can afford to buy homes at inflated prices. They may be (barely) able to afford the payment now, but in a few years there could be a double whammy. First, (assuming a 5 year interest only loan), now a loan becomes payable in 25 years rather than 30, and second, the rate that was in the low 5's is now in the 7 and 8 range (the rate could go as high as 10% or 11% depending on the ARM terms). Assuming a $200,000 loan at a starting rate of 5%, someone with an interest only payment could see their mortgage payment go from $833 per month to $1413 at a 7.00% rate, or $1817 if rates go up to 10% during the next 5 years. You could have quite a few foreclosures along with a limited number of buyers because they can't afford the home prices, even with interest only financing. I blame the mortgage investors for lowering the qualifying standards. They have made it too easy to qualify for financing. People making $25-30k a year in salary really shouldn't be buying homes 5 - 6 times their incomes. Personally, I plan on renting for a while and whether the upcoming storm.
I remember getting some unplanned upon money in 1999. I remember I wanted to get in on the tech stocks so I ended up buying a couple of tech/internet sector funds when the NASDAQ was 12,000. I believe both of those funds are now worth about 30% of what I paid for them. I definitely got in at the wrong time. I think people that have been buying homes after the big run up in home appreciation might have the same experience. I hope they got a fixed rate and a good home, because it doesn't look like they'll be going anywhere for the next few years.
can you explain what's driving the short-term rates?
Kleenex and Puffs Plus will be lucrative stocks when the debt hits the fan.
BINGO on the interest only loans!