Thursday, January 1, 2009

Update of the Mortgage Reset Graph

Long ago, Credit-Suisse compiled the dollar volume of mortgage resets per month. (I believe it was driven by Ivy Zellman. Anyone know for sure?) If you were lucky enough to see that graph, then the subprime-mortgage meltdown went from "insightful prediction" to "completely obvious."

It is a good time to revisit that graph:



The Obama administration has just about one year of a lull before the next wave hits in 2010. The third year of the Obama administration 2011 is going to see similar pain to 2008.



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6 comments:

Anonymous said...

But interest rates have fallen since the start of the 2008. The resets won't hurt as much this time.

Anonymous said...

The resets won't hurt as much this time.

It will probably be worse. Some of the future resets will cause the loans to be fully amortizing. ]

The interest rate could be ZERO and still drive folks into foreclosure.

Anonymous said...

The interest rate could be ZERO and still drive folks into foreclosure.

Exactly. What most folks don't understand is the difference between a negatively-amortizing option-ARM rate RESET and a payment RECAST.

All neg-am lenders set a maximum ceiling on how much additional principal the borrower can rack up due to negative amortization. For some lenders it's 110% of original loan principal, for others it's 115%, and still others (Wachovia) it's 125%. But once that limit is hit, the loan not only adjusts to market interest rates, it RECASTS to the fully amortizing payment.

Even at 0% (not gonna happen), the payments on such a loan could easily double or triple. If the borrower is already struggling with the pre-recast payment (as many along the bubble coasts are), then it's Game Over.

Anonymous said...

So... would the ARM resets have as much impact if everyone takes advantage of low interest rates now and renegotiates into a fixed rate?

Anonymous said...

So... would the ARM resets have as much impact if everyone takes advantage of low interest rates now and renegotiates into a fixed rate?

No -- but good luck renegotiating your mortgage if you're underwater, which is anyone who bought after 2002, especially in the bubble zones of California, Arizona, Nevada and Florida.

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