The data I see out there in the bond market on these tranches of debt is not pretty. That’s where I keep coming at this from: the bond market. I ignore everything the realtors say, everything the housing companies say, etc.
I’m looking at ONLY the parameters of mortgages, securitized mortgages, bonds, etc.
As of this past December/January, when people finally started to get interested in the mortgage issue in earnest, some quick analysis of the 2005,2006 vintage Option-ARM’s showed that at least 75% of people who took out OA loans in ‘05 and ‘06 were making the minimum payment on the note; this results in a neg-am on the missing interest portion.
That can’t go on forever.
The Option-ARM product was never intended for Joe-n-Jane Average to use to buy houses. It was a product pitched at people with substantial assets in comparison to the debt on their house, not as a vehicle to allow people who were strapped for cash flow to get into over-valued real estate.
The stats indicate that in the 2005/2006 vintage (and perhaps more), that a whole lot of people (once again) could not really afford the house they purchased. The house price was inflated, the buyers were strapped for cash. The only differences between this situation and the sub-prime situation are these:
1. These borrowers had better-than-subprime credit - often, they had “prime” credit ratings.
2. The amount they borrowed was often much more than in the sub-prime space.
All areas are not created equally, with some that experienced much bigger hits than others.
I tend to agree with this article, (for my area anyway) it seems the bottom has come and is probably behind us.
Then again, I'm not selling, so it isn't a big deal.