When Will the Tsunami of Foreclosures Hit?

MSN.com Real Estate ^ | 9/5/2006 | Charles DuBow

[ex-Texan]

With millions of adjustable-rate mortgages about to reset this fall, experts expect a wave of foreclosures by Americans in every income bracket. Here's why they could soar in late 2006 and beyond:

Those easy-mortgage chickens are coming home to roost.

This fall the adjustable-rate mortgages (ARMs) that millions of Americans took out during the recent housing boom will be reset, and many homeowners will see their monthly mortgage payments shoot up by as much as 20%. According to the Mortgage Bankers Association, of all mortgages financed in 2005, 36% were ARMs -- the highest ever.

This is a matter of concern because ARMs are typically initially made at a lower rate and then increase after a fixed period of time, usually one, three, five, seven or 10 years, after which the rate will more closely reflect current rates. As interest rates increase, mortgage payments increase. Between $400 billion and $500 billion in ARMs are due to be reset by the end of 2006. The following year will be even more dramatic, when more than $1.5 trillion will be reset.

For many Americans, this is scary news, if hardly unexpected. * * * [M]any of them are finding themselves stuck in a house they may soon no longer be able to afford, and, as the real estate market peters out, there's little they can do about it. * * *

Unprecedented situation:

* * * A major concern is that the number of ARMs issued at subprime rates to borrowers with lower credit ratings is not known. "We know that ARMs default at a higher rate than fixed, and subprimes default at higher rates than primes," says Sharga. "Never have so many ARMs reset at the same time. There is no precedent for it."

[Jacquerie]

Personally, if the bubble is going to burst UK side I wish it would do it much sooner rather than later,

I hope the same happens here, sooner rather than later. Let's get to the bottom, flush out the weak players and get back to a reasonable real estate market.

Now, we had a stock market bubble, then a real estate bubble and the next market for quick profits will be . . .

[BJClinton]

Take a peek at this map and hit the link. It details the initial regions of the U.S. most likely to suffer in the coming tsunami of forecloures:

Shouldn't they be degrees of blue rather than red?

[1rudeboy]

Yeah, I have fond memories of the place. I also like Long Beach, Indiana, come to think of it. In regard to the first, I'm not afraid of Mexican gangs . . . I'm from Chicago.

[Jacquerie]

Fannie & Freddie, the invisible bulls in the china shop.

[A CA Guy]

I think they hold in fact 95% of the RE loans and many loans made were risky.

Bottom line question is "What happens if there is a major market slide and that 95% of RE loans see even 25% go south?"

Who backs up Fannie and Freddie?
Some will tell me insurance companies will, but please tell me what insurance company wouldn't declare instant bankruptcy if lots of foreclosures happened?

Carter in 1980 signed a financial act that facilitated the S&L debacle which lasted over 12 years.
If we see something like this again, who pays in the end?
I think taxpayers will get stuck.

[krunkygirl]

later

[JasonC]

Dream on. Prices twice the rest of the country, even counting the way they average in the affordable stuff out in the central value. Along the coast, more like 3-4 times.

As for foreclosures, the places that actually foreclose are the lowest tier of houses with the least stable residents. The shacks foreclose. And who wants 'em?

[Fan of Fiat]

LOL!

[Physicist]

Please do not blame me. I am only the messenger.

I'm not blaming you. But I do wonder why you relish the prospect so thoroughly.

Seriously: what is it about economic tragedy that delights you so?

Is it that you hate America and wish her ill?

Is it that you hate the people who have prospered, and wish them to suffer?

Is it that you hate George W. Bush, and wish him to take the political fall?

[sergeantdave]

2007 will be the year to go fishing for upside-down deals in the market.

[Hydroshock]

This is going to be a mess.

[LadyNavyVet]

I don't recall Greenspan "touting" ARMs in late 2003 and early 2004. Do you have a specific reference for that? Discussing and touting are not the same thing, and I have a hard time believing that Greenspan, while Fed Chairman, would actually be recommending specific mortage products to the American people.

[freedumb2003]

We've talked about this before.

You can't legislate out stupidity. If people over-bought and over-spent then tough brownies.

If the market crashes I will have PLENTY of equity left and cash to pick up the pieces.

I can only hope stupidity once again pays off for those of us who can do basic arithmatic.

Go Bubble-pop, go!

[doctor noe]

There are some good deals to be had in Long Beach, MS.

[ex-Texan]

There was a new report on Bloomberg saying exactly that. The site must have been overwhelmed by hits. It was not responding after five attempts and seven minuets of wait time.
Oh, well . . . Nada por nada.

[Porterville]

More faith in the American people from you?

Lowly. Must be hard to look up at snail slime.

[RockinRight]

Other than the fact that I'll probably either be unemployed or making a third what I do now (either way doing me no good) that sounds great to me.

[Eva]

The problem with your logic is that the fixed rate is only a little over 6%, so all these idiots with the ARMS are just going to get smart.

[ex-Texan]

You do Google don't you? View 450,000 reports. That famous plug of ARM loans has been drawing flack from critics for years. The real estate bubble was set to burst in 2003.

[LadyNavyVet]

I stand corrected. He did indeed talk up ARMs in 2003. According to the Washington Post, though, he rescinded the recommendation and warned against risky mortgages, including interest only mortgages and certain types of ARMs, in 2005.