Crisis Looms in Mortgages

The New York Times ^ | 03/11/07 | Gretchen Morgenson

[Bluestateredman]

Crisis Looms in Mortgages (subprime, teaser rate loans come due)

[glorgau]

The housing slowdown is a year and a half old. What took so long for subprime mortgages to get in trouble?

Resets. Plus, strain build until a breaking point is reached and then... SNAP! the snap is happening now in subprimes and will spead uphill a bit.

The good thing is that responsible people that can put down the traditional 20% and demonstrate that they have the ability to make payments will no longer have to bid against people that are getting stated income, no money down, negative amortization loans.

[SkyPilot]

The subprime and Alt-A meltdown is in full effect and there is going to some serious damage to parts of our economy from this. A lot of money is flowing out of hedgefunds right now. Many of these funds bought a lot of mortgage backed securities filled with these toxic loans as a big part of their portfolios.

You are dead on.

I believe there are a lot of people on Free Republic who either make their living in real estate, or are counting on real estate profits.

I am all for making money, but too often they show up on these threads as graveyard whistlers. They try to shout down anyone who points out the looming crisis.

A real problem that is just around the corner are the "McMansions."

In the 1950's, homes were 650 sq ft. Now, much smaller families are demanding to live in homes 10 times that.

Many "I am rich" posers have got in over their head by buying these behemoths.

Let's not even get into the creative mortgages some people signed up for just to purchase their McMansion.

The heat bills can be $10,000 a month. Air Conditioning bills are astronomical.

Taxes on these dinosaurs are soaring in many areas of the country.

Someday, you may even see the McMansions divided up into 2-family dwellings if local towns and zoning boards are desperate enough.

While I think many of these homes are really beautiful, I could never understand why a couple who has only one child (who in many cases who has moved away to college!) needed an 8,000 sq ft house to begin with.

The upkeep in time and expense is also astronomical for these homes.

[HereInTheHeartland]

"Banks protfolios, by and large, are hedged against much of this. "

Most people have no idea what mortgage backed security is or how it impacts a responsible mortgage lender.
Most people think that lenders actually keep the mortgages they make.
Most people probably don't realize that they own slices of mortgage pools in their retirement accounts.

Yes we will be fine. For some there, is always a crisis around the corner.

[Moonman62]

Resets. Plus, strain build until a breaking point is reached and then...

What do you think of the current slope of the yield curve, the Federal Reserve's effect on the yield curve, and the types of loans that are affected by the current slope of the yield curve?

[glorgau]

What do you think of the current slope of the yield curve...

Most adjustable mortgages are pegged to somelike LIBOR. But, yield curve doesn't mean much if one can't qualify for a loan. The main qualification in recent years was the ability to fog a mirror.

[Moonman62]

The yield curve can mean everything if the loan one is trying to qualify for is adjustable. For instance, when the yield curve is inverted as it is now, that means the Federal Reserve is keeping short term rates way above market rates.

[mcenedo]

And even when they do default on the loan, the property goes to the bank to sell. It's collateral. Many times they make a profit on the defaulted property.

Sadly, that has not benn my experience in 20+ years managing (among other things) the sale of our REO's.

That being said, I'm with the sky is NOT falling crowd. I think the worst outcome will be the government trying to impose (even more) regulations on the industry.

HUD can't even issue a coherent RESPA ruling.

No body forced anybody to take these mortgages or to buy interests inthe secureties.

[SkyPilot]

That being said, I'm with the sky is NOT falling crowd. I think the worst outcome will be the government trying to impose (even more) regulations on the industry.

The problem with the phrase "the sky is falling" is that people tend to believe the proverbial "sky" has to fall on everyone equally.

It does not.

Some people will be fine. Some will not. The latter will consist of people who purchased a house they could barely afford, at the height of the boom, with a very "creative" loan.

Some areas of the country will do worse than others.

[goldstategop]

The subprime market is collapsing? The Drive Bys/MSM have forecast the end of the housing bubble forever. I am still waiting for the loan interest rate to fall to 2%! ;-)

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

[only1percent]

Some skepticism is warranted about Times' business coverage, but not really on ideological grounds.

It's because the Times is just not in the major leagues -- on long-lead stuff, Barron's, BusinessWeek, and Fortune are all ahead, on daily, the Wall Street Journal (and, in it's targeted sectors, the New York Post!) are way ahead, and in intraday Blooomberg, Reuters and CNBC are all more important.

Another problem is that the Times has always mandated its business writers to write for the Times' general audience -- the bureaucrats, doctors, lawyers, and culturati who might have fancy educations but who rarely know the first thing about finance or economics.

(By the way, Krugman is an ax-grinding ideological idiot on most things, but he's actually a gifted economist and writes highly intelligently if he can be confined to his areas of actual expertise.)

[sobieski]

But aren't long-term, fixed rates lower, then?

[ken5050]

12 months ago, you could turn on a radio anytime, and hear ads advertising loans on "125% of appraised value"...a sure signal that the apocalypse was imminent..(g)

BTW the word "tranche" is French . It means "an open, runnng sewer..."

[meyer]

It's going to be a buyer's market, baby.

Yep! It's times like this that liquidity is your friend.

[meyer]

The liberal media has been panting over some "tipping point" that they hope brings the economy to a halt.

And yet, the one most critical "tipping point" factor might well be the coming tax increase that occurs when the leftists in the House and Senate refuse to make the tax cuts permanent. Nothing can stifle an economy like high taxes. Ask those folks in Michigan.

[Moonman62]

Going by APR, fixed rate mortgages are lower right now.

[Kenny Bunk]

The liberal media has been panting over some "tipping point"

Never fear. No matter how great the coming Great Depression, Hillary will be there to save us. You see, she loves the little people, knows what's best for us, and will lead us to Peace and Prosperity.

I'll bet, as a member of the VRWC, you didn't know that in the coming crisis, Women, Children, Minorities, and Gays and Lesbians are sure to suffer most.

[theBuckwheat]

>>
By the way, Krugman is an ax-grinding ideological idiot on most things, but he's actually a gifted economist and writes highly intelligently if he can be confined to his areas of actual expertise.
<<

The problem with people like Krugman is that you cannot trust a single word they say or write. Ideology touches, and taints, every aspect of his work, just as much as the profit motive touches every study ever funded by Big Tobacco or Big Pharma.

Like the Times itself, even when it published the unvarnished truth about a matter, quite often there is a broader ideological reason for hammering the truth at a particular moment. This can be seen in the WaPo's recent story about the conditions at Walter Reed Hospital. If the WaPo was really concerned about the welfare of our soldiers, why work on the story in secret for three weeks instead of bringing the facts to the light of upper administration officials the instant they were documented? Because it is very useful in making the adminstration look bad.

When telling the truth advances the favored narrative and agenda, the truth will do just fine. When making things up serves better, then whatever sounds good becomes the story of the day.

[DCPatriot]

It's going to be a buyer's market, baby.

Re-distribution of wealth on a grand scale.....

[SkyPilot]

12 months ago, you could turn on a radio anytime, and hear ads advertising loans on "125% of appraised value"...a sure signal that the apocalypse was imminent..(g)

I heard commercials similar to that.

By the way, I meant $1,000 month on heat bills, not $10,000 - but my estimate of one grand a month is low. A friend of mine paid almost $2,000 in heat for Feb.

[Moonman62]

Resets. Plus, strain build until a breaking point is reached and then...

I did some more research and the recent subprime fallout isn't due to resets. New Century which is the subprime company making all the news is getting hurt by early payment defaults. These are loans where the borrowers fail to make the first one or two payments. New Century has to buy back those loans from investors. In other words, these aren't loans that are resetting. They are loans that shouldn't have been made in the first place, though there is a good portion of them that are simply due to paperwork errors.