Posted on 12/18/2009 8:37:49 AM PST by blam
The Second Wave Is Already Ashore
By Jim Nelson
12/17/09 Baltimore, Maryland – The second wave of ARM resets and foreclosures might come sooner than you think. According to Whitney Tilson and Glenn Tongue of T2 Partners, the experts on this subject, about 80% of option ARMs are negatively amortizing. Meaning these so-called top-tier borrowers are heading further into the hole. Once their rates reset, they could be in serious trouble.
And that could be happening very soon:
The chart above, which should look familiar, shows the two peaks in this long-term housing conundrum. The first mountain is comprised of subprime ARM resets. And the second is mostly constructed of option ARM resets. We appear to be in the eye of the storm.
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If the banks have not already been working to soften the blow, then let’m go under.
No problem, I’ll write a check to cover differences..
the libs not only know about this, they have orchestrated it...time for all conservatives to create a little fund for themselves, and be prepared to buy, buy, buy.....homes and property will be dirt cheap for anyone with a coupla bucks cash in hand....if ya can’t beat ‘em, then take advantage of ‘em....
They are being ignored. Foreclosures by homeowners and commercial retail are being ignored....I guess that’s what a ‘stairstep decline’ means....controlled collapse.
the Libs are setting the dominoes in place for a banking collapse, while at the same time allowing the flames of populist outrage to be fanned over banker bonuses and credit card rates. Very clever strategy to spring a bank nationalization on us when the time is right.
The Commercial Real Estate Default Wave is Here: Commercial Mortgage Defaults Now at 16 Year High. 3.4 Percent of all Commercial Real Estate Loans in Default.
There was an article today that indicated that million-plus dollar mortgages had twice the default rate of the average mortgage. Lots of these high end mortgages were financed using such exotic instruments as mentioned in this article.
Thanfully the upside to all of this are that when these Option ARMS reset they are likely to reset at an obscenely low interest rates.
This rate is comprised of an index, typically the MTA which is currently at about .6% plus a contractual margin, which on most option arms is between 2.5 and 3 percent.
So the rates currently that these option arms will currently reset at are between 3 and 3.5%.
I do not see how this could be such a great problem. The problem will arise once interest rates increase, because the Option ARM rate will continue to adjust monthly.
BTW I have an option rate with a margin at 1.5 percent. Currently my interest rate is at about 2 percent. Unlike many option arm borrowers I am paying it off as if it were a 15 year mortgage. I have been approached numerous times by the bank to have my mortgage modified to a fixed rate in the high 4’s or low 5’s. I have declined. I anticipate these low rates to be around for awhile and by the time the higher rates returns I will have taken a large chunk out of my mortgage.
bm
bump
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