An Analysis Of ARM Resets
Readers suggested a topic on the adjustable rate loan resets. “An analysis of the ARM reset chart. We are getting close to the top of the first bump, and things are already pretty bad. Yesterday, someone said that Goldman has another chart that shows a different pattern and that we aren’t as close to that first peak as we thought.”
“The chart only deals with first resets. What would it look like if subsequent resets were included? The MSM reports seem to indicate anecdotally that people can sometimes handle the first reset with difficulty, but later ones are just too much.”
“What about the option ARMS? There was a report recently that they are starting to reset earlier than expected because people were making the lowest possible payments and hitting their equity limits. Aren’t the option ARMs a huge part of the second bump of the chart? What happens if they really do kick in ahead of schedule? Is it just more of the same? Something else going to happen?”
Another added, “It would be good to see a current chart. We’ve all been referring to that one chart that came out in January, and talking about the two peaks etc. - but I suspect that the peaks in that chart are somewhat transitory.”
“There are new ARM loans being done all the time still, which would serve to shift things back continuously - the peaks will always be yet to come - we will never reach them. You can only tell when the real peak happened by looking back at when the resets actually happened.”
One posted this, “(**PDF Alert**)Here’s the link to the Goldman charts. Goldman’s chart show the resets peaking in March 2008.”
“I think the difference in timing between the Goldman and Credit Suisse charts has to do with their respective release dates. The Credit Suisse charts were released in March 2007, while the Goldman charts were just released in October 2007.”
“Back in March 2007, subprimes were still alive and kicking giving some of borrowers facing early resets time to refinance and extend their eventual doom. I could be wrong, but I imagine that’s why there is a discrepancy between the charts.”
From the report: “2. What happened in 2004? The relationship between Californian house prices and disposable income as a multiple of long rates broke down in 2004; we believe that aggressive sales of ‘affordability products’ (e.g., subprime, option ARMs, home equity loans), which spiked in 2004 (see Exhibit 2), drove Californian home prices well-above levels supported by economic conditions.”
“Now that the secondary market for these affordability products has all but evaporated, we expect home prices in California to return to normalized levels (i.e. levels implied by current and forecast disposable income in California as well as U.S. ten-year treasury yields); this implies a 35-40% fall.”
“As of last August the median house price in California was $589K, but economic conditions support prices between $350-380K (see Exhibit 1); material price declines are likely, in our view.”
One poster said, “I noticed this on happenstance of daily data mining. The issue of pushing the time of danger forward creats a false sense of security for the lawdogs to pander to the public, while cutting backroom deals and floating trial balloons in the press.”
The Wall Street Journal. “Struggling homeowners seeking mortgage relief from their lenders say they are hearing a tough message: We can’t help you unless you first fall behind on payments.”
“As past-due home loans keep piling up — and some two million adjustable-rate mortgages prepare to adjust higher in the coming year — mortgage companies are reaching out to borrowers in hopes of fending off foreclosures. On the other hand, they remain wary of cutting the interest rate, extending the term or forgiving debts, as long as borrowers are still current on their payments.”
“‘In general, the mortgage company wants to see a consumer default on three separate payments before considering a loan modification,’ says Elizabeth Schomburg, senior VP of the Family Credit Counseling Service in Chicago.”
“Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling, says its member agencies in areas from Southern California to Texas have seen the same trend. ‘One counselor in Amarillo, Texas, just told me ‘It seems to me they almost encourage people to fall behind in order to find help,’ Ms. Cunningham says.”
“Mortgage companies, on the other hand, often point to the way home loans are sold and packaged today as the key factor that complicates their efforts to help borrowers. Most mortgages are no longer owned by the companies that originated them, but are funneled into securities and sold to investors world-wide.”
“As a result, mortgage servicers, who collect payments on the loans for a fee, often define their responsibility as maximizing returns for the investors for whom they service the loans.”
“Mortgage servicers have to make sure they can ‘defend’ the actions they take to help prevent foreclosures, said Steve Bailey, head of Countrywide’s loan-administration division, in a recent interview. Often, he said, those investors ask: ‘Are they truly not able to pay?’”
“Still, Mr. Bailey said, ‘To recommend someone to not pay is a bad recommendation.’”
‘aggressive sales of ‘affordability products’ (e.g., subprime, option ARMs, home equity loans), which spiked in 2004′
Actually, the subprime spike started in 2003, as the chart shows. And BTW main-stream media, from the PDF:
‘Our hitherto highly-predictive model broke in 2004, when sales of “affordability products” (e.g., subprime, option ARMs, home
equity) spiked as a proportion of total mortgage originations.’
‘as a proportion of total mortgage originations’ is a nice way of saying that prime lending took a dive and the lenders resorted to ‘affordability products’ to keep the party, and their profits, going.
There is a story here for any of the MSM that cares to pick up on it; the bubble would have deflated years ago, and not been as damaging, but for this industry move.
‘The Washtenaw Group Inc., a holding company for Washtenaw Mortgage Co., has reported a net loss of approximately $1.7 million for the first quarter, compared with a net loss of $3.1 million ($0.69 per share) a year earlier.’
‘Mortgage origination volume totaled $169 million in the first quarter, down 57% from $394 million in the first quarter of 2004.’
‘We are doing everything possible to generate mortgage volume and reduce operating expenses. We have introduced many of the newest mortgage products, such as zero-down, interest-only and Alt. A. In fact, we are expanding the criteria for Alt. A. mortgages to cast a wider net and attract additional borrowers, Charles C. Huffman, Chairman and CEO said.’
‘Lenders are facing increasing competitive pressures, and the need to maintain and increase loan volumes may be driving the push to looser standards. ‘The structure of the loans has really changed. What you’re doing is leaving a lot more risk on that borrower,’ said Brown, of the FDIC.’
‘Getting more people into homes ‘is the right thing to do from a policy perspective, if you do it correctly,’ said Frank Nothaft, of Freddie Mac. ‘That’s always the big if.’
‘After a government report suggested that lenders were steering minorities to pricier home loans, Attorney General Eliot Spitzer said last week his office would look into how lenders set fees and rates on home loans.’
”These banks should get out of this business … (but) they’re attracted to the high yields these loans provide,’ said Dick Bove, bank analyst at Punk Ziegel.’
‘In fourth-quarter 2004, interest-only (IO) loans and traditional ARM loans accounted for more than 55% of the prime jumbo loans securitized. This figure is up sharply from fourth-quarter 2003, when it represented only 12% of the securitized loans.’
‘Standard & Poor’s expects a drop in dollar volume of mortgage originations and loan securitizations by approximately 15% to 20%. We predict the dollar volume of mortgage loan originations and issuance to be off approximately 30% from $225 billion in 2004 to $160 billion in 2005.’
‘PMI Mortgage Insurance alleges that it was misled by NovaStar when PMI set the terms on insurance for 6,300 loan made from 2000 to 2002. The loans in question, known as ’stated income loans,’ require borrowers to truthfully state their income without providing documentation.’
‘(In) a March 9 deposition by NovaStar President Lance Anderson..said if the income ’seems reasonable, then we’re comfortable not verifying it and not using it in our underwriting decision.’
‘In fourth-quarter 2004, interest-only (IO) loans and traditional ARM loans accounted for more than 55% of the PRIME JUMBO loans securitized. This figure is up sharply from fourth-quarter 2003, when it represented only 12% of the securitized loans.’
Back in 2005 this entry got 9 comments total.
Prime Jumbo?!? Prime Jumbo sounds like trade-up McMansions to me. Isn’t this the “good stuff” that got mixed with subprime to make subprime look better to investors? And now I learn that 55% of the blue-ribbon loans are exotics of some sort. I bet they were 3% or less down too.
What’s the grace period for these things? 3 years? Those grace periods should be ending right about now — just in time for higher interest rates and stingy refinances. AND just in time for comps and builders undercuttting to 2004 prices, thus wiping out any appreciation equity from 2004-2007. These Primes are slightly underwater. They might be able to keep up, might not. But if they HELOC’d toys, they’re toast.
And if I remember, the “credit crunch” in August wasn’t exactly because of subprime. August was when it became apparent that the crisis was going to bleed into Alt-A. That’s what made the investors demand their money back. What is going to happen if half of Prime goes down?
I would like to personally thank the “Federal” Reserve for pandering to Goldman Sachs and in the process decreasing the value of my down payment savings.
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The MSM and perhaps Ben Jones have missed what a few accountants have beens saying about the SIVs and SPEs… these vehicles get LIABILITIES off the balance sheet — but magically allow the instant booking of PROFITS. However, according to FASB (insert rule # here), these SIVs and SPE must be very mechanical in the manner they deal with servicing — otherwise their off-balance sheet status and the whole booking profits things is called into question. In other words, mechanically speaking, no work-out without default. And it isn’t the old shibboleth - “profit of the shareholders vs the good of the homeowners”
Ben didn’t miss the “booking of profits” part — it has long been discussed here.
As for the FASB stuff, we count on posters like Crispy and others to apprise us of new or otherwise applicable rulings.
“…these vehicles get LIABILITIES off the balance sheet — but magically allow the instant booking of PROFITS.”
Sounds vaguely reminiscent of the payment option ARM, where deferred interest payments are booked as profits up front.
“There is a story here for any of the MSM that cares to pick up on it; the bubble would have deflated years ago, and not been as damaging, but for this industry move.”
I was preaching bubble-speak in my office around ‘03 and was calling for the bust in ‘04. What I didn’t see coming was how much more insane lending standards would become, which threw my prediction off by about 2 years. There is no question that loose lending kept the bubble on life support.
I can remember starting back in about ‘03/’04 that it seemed about every month new products would hit the markets that would push the envelope more and more. You could just sense the game that was being played by the lenders where they were going “well heck, if we can sell that crap, let’s see if Wall Street will buy this.” It wasn’t about what was right or wrong, appropriate or inappropriate. It was about whether or not they could sell it and move it. Anyone with an open mind could see the perfect storm coming together.
“not been as damaging”
Questionable comment. If there is a silver lining to what has happened, these events (housing bubble burst and the resulting credit crunch) have highlighted, with great effectiveness, that, we as a nation are living on imported Capital for consumption. Earlier we recognize our addiction, less painful the treatment is. And we are doing rest of the world some good by confessing early that we are junkies and please don’t give us the next fix (or bottle or joint).
‘Questionable comment.’
What’s questionable about it newbie? Someone last week was going on about how this was going to teach us a good lesson, etc. I replied that is easy to say in the fall of 2007. We’ll see how you feel in a year or two.
If we didn’t have to face the music in Fall 2007, it would have become much more difficult by 2011 when we as a nation truly start staring at bankruptcy (when the boomer entitlement tsunami starts hitting). We now have a good 4 year early warning to board up the windows and seek higher ground.
MWHAHAHAHA!! Kick him in the balls Ben…
Wow! I seem to hurt a lot of feelings by pointing out it is better to have some darkness because fuse is blown than have the house on fire. The problem is due to overcurrent. Cursing blown fuse is no help. Silverback1011 has the best response - we as a nation have to live less well. This crisis is screaming that message at us loud and clear.
BSR,
I see your point, but the coming/present “crisis” showed itself years ago. Housing was clearly over-heating in 2004. The Federal Reserve stood back and watched. Even Greenspan himself was telling the public that an ARM was a good thing. The run up in borrowing costs was far too slow. Everyone jumped on the bandwagon including our Government.
Exactly right, Ben. I do believe that, as everyone has already figured out, that unless you’re in the market for a newly-cheap house, anything that the rest of us already own, including those with fixed-rate 30-year mortgages or paid-off homes, will be damaged by this downdraft. Lessons ? I don’t need lessons - I already made my mistakes in the 80’s & won’t be making them again, hopefully. This is going to go way beyond “lessons” in easy credit. Chrysler just cut 30 - 33 percent more of it’s workforce, yet I’m supposed to go out and buy a $25,000 piece of crap made in Mexico. Uh, yup. I’m supposed to be investing more in the stock market. Uh yup. We’re not travelling this year. Not feeding the Florida or Arizona economies several thousand in “fun” money this year. Christmas ? $25 gift cards from Barnes & Noble. Maybe $20 gift cards. Deal with it, relatives. I pulled ALL of my retirement savings out of the stock market in July and put them in money-market accounts ( within the fund families ) until this settles down. My contributions are the same or more, but they aren’t going into Wall Street. We just ate leftover hotdogs, leftover mac & cheese, a leftover tomato, and 2 carrots for dinner. We have almost debt beyond my husband’s student loans for pharmacy school and our mortgage. I just paid off what little we had left, except for our nice beautiful plasma tv ( replaced a worn-out 27-year old set ) which we have on zero percent interest for 2 1/2 more years, and some money which we have at zero percent ( for a year ) for a roof replacement which we have on our paid-for rental house. Before the one-year is up, I will have either moved it to another zero-interest offer from the CC companies, or pay it with savings. We’re driving 6-year old paid off cars, which were bought at zero percent financing. They’re Japanese - they’ll last. My husband is driving a 1993 Honda hatchback to school & back. We’re NOT helping this economy grow, and are trying to do everything possible to keep from being sucked into the black hole which will be occurring to all of us. I car pool. It’s gonna be interesting. Hope everyone has some savings to fall back on. I’m putting up with 7 more Michigan winters so I will qualify for lifetime health insurance with a premium that I will have to only pay 10 percent of. ( Not an auto-related employer ). Good lesson forsooth. We’ll ALL be hollering, even the financially well-set ones, I’m willing to believe….
“We just ate leftover hotdogs, leftover mac & cheese, a leftover tomato, and 2 carrots for dinner.”
used imitation tupperware (square — fits most space-efficiently in fridge!) on ebay was one of the best long-term investments i ever made….
My first comment got lost unfortunately. Right on, Ben. Lesson ? This goes way beyone “lessons”. Chrysler laid off 30 - 33 percent of its workforce in the last 2 weeks, yet I’m supposed to keep on buying $25,000 crap-cars made in Mexico ? Yeah right. Listen, Mr. This-Will-Teach-Them-All-A-Good-Lesson, my husband & I probably have more in savings then you ever thought you could sneeze at. Hope we can keep them. This economy is set for a downdraft the likes of which haven’t been seen since 1929. We’re NOT contributing to the continuously falling enconomy. We have a paid-off luxury home which at present we’re renting out to optimistic young couples with good credit. Hope we can continue to do it. We’re driving 6 year old Japanese cars, & aren’t planning on buying any new ones. He’s driving a 1993 Honda hatchback back and forth the pharmacy school. I’m carpooling since this summer, and am putting up with 7 more nasty Michigan winters in order to qualify for lifetime health insurance thru my employer, which I wil only have to pay for 10 percent of the premium on. We just got done eating leftover homemade mac & cheese and low-fat hotdogs with a leftover tomato & 2 carrots for dinner. For the first time in many years, we’re not going anyplace warm this winter - several thousand tourist dollars not being contributed to the Florida or Arizona economies. I just paid off what little remaining consumer debt we have ( $1600.00 ). All we have left is the mortgage on our residence, with $50,000 equity (whatever it’s worth now of course wouldn’t show that kind equity), his student loans @ 4.75 percent deductible interest, a plasma replacement tv at zero percent for 2 1/2 more years - which will be paid for in another year at worst - and $ 7500 at zero percent interest for a re-roofing job at our luxury rental, which will be our retirement home. Christmas ? $20 gift cards from Barnes & Noble. Deal with it, family. I just moved ALL of my retirement accounts to money-market funds within the fund families because I REALLY don’t know what’s going to happen to Wall Street, except that everything is probably going DOWN. I haven’t stopping contributing, in fact I’m contributing more, but it’s going on ice till I figure out which way to go. This is going to be a downdraft so severe that one like it hasn’t been seen since 1929. We’re truly the millionaires next door, and we’re very worried. Why is husband in pharmacy school at the age of 55 ? Because he can’t find a job after 30 years of experience as a chemist. He’s working Friday nights as a pharmacy technician at Kroger. He gets 10 percent off on Kroger products. Guess what - he’s keeping the job….so I think that this goes way beyond snide comments about “lessons”. Just my opinion. Don’t have a decree in finance. Do have a kind of bellweather instinct. Right now we’re circling the wagons.
I’ve been doing things very similar to you, but consider myself very vulnerable to a collapsing dollar & inflation, which is not like 1929.
I was conversing at length with my son-in-law today, about housing, equity, prices, rental properties, exchange rates — most everything we discuss on the blog. He asked me when I thought we would be back to “like it was before.” I told him that, relative to the decline of the dollar high-rolling living-on-credit times we’ve just been through, I do not have enough years left on this earth to see those again. I’m glad that he will, but the days of 25-year-old smart-asses like Casey and Crisp being able to buy mansions and Bentleys on credit worth air are long gone in this country, IMO.
Or if they do manage to get them, “their” possessions will soon be repossed by the lenders….
How on earth can you call this early? It is still early after the SHTF, but this binge has been going on for quite a while. Look at the Goldman report linked in the main post. Look at the way the last housing bubble moved away from the trend line and the way this one did. You can’t possibly think this bubble burst early.
“And we are doing rest of the world some good by confessing early that we are junkies and please don’t give us the next fix (or bottle or joint”
We have put our Country in a very dangerous position. We have leveraged “the full faith and credit backing of the US Government” to the maximum.
Considering our Account Deficit is funded by “the rest of the world” and the “World” has already cut off the “junkie”. Just look at how the Federal Reserve is pumping record amount of liquidity into the system.
I believe that the Dotcom crash surprised the Federal Reserve in that the damage was spread out amongst the World’s Economies. Hence, they felt they could take a chance and lower interest rates to re-ignite the economy.
I believe the critical devaluing of the US dollar is telling us that the World has “seen enough.” Now the “junkie” is selling anything he has of value “ports, tollways, bridges, and commercial property” to survive.
Scary stuff guys…. If the dollar continues to “nosedive” you could argue that Real Estate prices, to an extent, are “pricing-in” the currency devaluation. Whatever pricing model your using, i.e.1998-2004 should take into account the currency devaluation. Personally, I’m using a 2001 model with a 25% currency devaluation as a buy signal.
BSR,
Some of those foreign capital inflows that are subsidizing our bad habits are going away.
Asians Pulling Out of the Dollar at Record Rates as Crash Proceeds
Oct. 18, 2007 (EIRNS)—Chinese and Japanese sales of U.S. Treasuries grew in August “at a pace unprecedented in the last five years, as the US subprime mortgage crisis triggered the biggest sell-off of dollar assets since Russia’s 1998 default,” as reported in the China Daily. China cut its holdings of U.S. treasuries by 2.2% or $9 billion, to $400 billion, while Japan dumped 4% of its total holdings to $586 billion, the most since March 2000. Taiwan’s ownership of U.S. government bonds fell sharply by 8.9% to $52 billion.
According to latest statistics, $400 billion of U.S. treasuries only account for 28% of China’s $1.43 trillion foreign reserves now, a sharp contrast to years ago when most of China’s foreign reserves found their way into U.S. treasuries. While the driving force is clearly the recognition that the crash is on, analysts covered by China Daily attributed the spark for the rapid exit from the dollar to the low exchange rate caused by subprime mortgage fallout, and the Federal Reserve’s decision to lower the interest rate by 50 basic points. The dollar has devalued by some 7% this year against the euro. Suspicions that the Federal Reserve would cut the interest rate again further contributed to pressure for China and other countries to reduce holdings of U.S. assets.
China’s State Administration of Foreign Exchange said in a conference that foreign exchange management departments should move against hot money flows, by “regulating foreign capital inflow and foreign exchange management, preventing illegal capital inflow and short-term overseas speculation, to ensure the national financial security.”
‘affordability products’
Time to place that expression into history’s dustbin of oxymoronica.
Note the meaningful use of double parentheses around “affordability products” in the Goldman Sachs report.
BTW, will the analyst in charge of this frank report on the bleak California housing situation face the same fate as Ivy Zelman, and have to start up his own firm outside the Wall Street boyz club?
The relationship between Californian house prices and disposable income as a multiple of long rates broke down in 2004; we believe that aggressive sales of “affordability products” (e.g., subprime, option ARMs, home equity loans), which spiked in 2004 (see Exhibit 2), drove Californian home prices well-above levels supported by economic conditions.
“The relationship between Californian house prices and disposable income as a multiple of long rates broke down in 2004; we believe that aggressive sales of “affordability products” (e.g., subprime, option ARMs, home equity loans), which spiked in 2004 (see Exhibit 2), drove Californian home prices well-above levels supported by economic conditions.”
Agreed. In San Jose, CA the stock options “gold rush” drove homes beyond the reach of those employed in “bricks-n-mortar” industries, myself included.
“Still, Mr. Bailey said, ‘To recommend someone to not pay is a bad recommendation.’”
The realtor of a FB couple I know recommended they stop making payments on both of their mortgages. They’ve tried calling without success. The realtor says it’s the only way to get the servicers attention.
The couple paid 250K in 2005 using an option ARM. They can’t manage the reset. Realtor says similar homes in neighborhood are selling for 160K. They are looking at a short sale and it’s listed for 175K.
The point about missing the payments is to ensure that the borrower is also feeling some pain (i.e., to his credit score). Otherwise he could get his reduction, painlessly.
I’m glad they’re doing it.
“Still, Mr. Bailey said, ‘To recommend someone to not pay is a bad recommendation.’”
Now Mr. Bailey, the correct answer would be a resounding “it depends.” Say for example you bought a home in Merced, California for $700K in August of 2005 with 100% financing. Today your castle (I mean home) would sell on the market for something I suspect around $500K (yes I recognize some of you will tell me that it isn’t even worth that). So, based upon my example the totel debt (assuming interest only loans) would be about $200K over the property value. “Upside down” or “under water” are the terms. At risk in letting the home go into foreclosure is your credit rating. On the benefits side is the fact that you could probably live there rent free for six or so months during the foreclosure period, and there is no personal liability on the secured debt because of California Code of Civil Procedure Section 580b.
My belief is the market isn’t going to turn around anytime soon in Merced, and all that time you are waiting for the value to come back you are having to make payments of interest, taxes, insurance, HOA dues, etc., that are greatly in excess of the fair rental value of your castle.
Seems to me, given this example, letting go of the asset (I mean liability) makes sense.
Daniel
Actually, homes in Merced are probably only selling at 40% of the 2005 peak. So, they $700,000 (Castle? in Merced? What a joke! Merced is a hell-hole) would sell, if someone could even obtain financing, for probably $280,000-$300,000…
Can someone please list sources of income for someone to make $100K p.a. in Merced? How about $200K p.a.? Growing pot doesn’t count. Thought so.
BSR: why doesn’t growing pot count? As I understand it, pot is California’s #1 cash crop.
Just to highlight the fact that there is no legal way to earn six figure income in Merced. Nor anywhere in most Central Valley.
Then who shall supply medical marijuana? I think sometimes the sheriff in town just looks the other way… So it really doesn’t matter, does it?
I have a friend who is an auto dealer in Napa. He always looks forward to harvest time. Sales of Jeeps spike upward about 40%.
Daniel:
I think your analysis is generally right. However, I think that a lot of 100% financing was done through 80/20 lending with a second lien for 20% of the purchase price. While I think that the second is “purchase money” and therefore should not be recourse, I think that the documentation was designed to make it seem like a HELOC and somehow not purchase money. I’m not sure that the issue’s ever been tested in court (yet).
Also, at least under current law, there would be the tax on the forgiveness of indebtedness on the second. But under your scenario, the six months’ “free rent” would go a long way towards that.
Foregiveness of debt and the non-recourse nature of purchase money loans, at least here in California, clearly provides what I’d characterize as a well reasoned basis for concluding there is “no forgiveness of debt,” even in the example I give above. The answer would be obviously different if the poor borrower had been using his home as an ATM and pulled out equity in excess of their basis in a non-owner occupied investment they had where the “equity liberation” related to a post-purchase HELOC.
The result I suspect is “all in the facts” with my initial storyline slanted towards a finding of no tax liability.
Ben, thanks for providing a means whereby I can answer the question I’ve been asking for several months, viz., what is the source of the discrepancy between the Credit Suisse chart and the other ARM-reset charts we’ve been shown? In the “pay-option ARM” part of the Goldman chart, I see nothing different from the Credit Suisse chart, where the pay-option ARM’s are coded in dark green. In the “subprime” part of the Goldman chart, the ARM-reset peak is indeed slightly later than the subprime (gray) part of the Credit Suisse chart, but the pattern is basically the same. What I take away from this is, if I have the CS chart more of less wired into my mental state, I am not going to go far wrong.
“if I have the CS chart more of less wired into my mental state, I am not going to go far wrong.”
Bingo. And I’m going to hazard a guess that the Credit Suisse chart will remain relatively accurate for those loans done before January 2007…as I would guess that most serial refinances would wait until the last three to six months of their teaser rate to “reset the clock”. After August 2007, they got stuck.
The only substantial change I see is to add on the new loans that were made after January 2007, up until August 2007.
I agree with this.
the time of danger is here, and will rage stagflation through the American Economy, and highly inflationary pressures throughout the emerging markets. I continue to think back to a John Connally quote; “The Dollar is not our problem, its yours”
“Struggling homeowners seeking mortgage relief from their lenders say they are hearing a tough message: We can’t help you unless you first fall behind on payments.”
Yeah, right. This is all about bottom feeding by the financial institutions. Once you are behind on your mortgage payments, no other lender will touch you. Your own mortgage servicer turns your account over to the $7 an hour collection vampires. Huge late fees are added to you account. All in hopes that they can wring a few dollars more out of your sorry behind.
And P.S. Your credit card interest will go up to 30% because of your mortgage lates.
So weird. I have never forgiven debt, but I have often extended a maturity date and sometimes lowered an interest rate. The lowering of interest rate I would not consider except for a borrower whose record is absolutely perfect. The extension of maturity date is usually just a matter of forgiving a few missed payments (but adding on interest for the period of non-performance). In this second case, I am much happier if I hear from the borrower BEFORE the default happens. Clearly I am about 50 years out of date in my lending methods. Thank God.
And P.S. Your credit card interest will go up to 30% because of your mortgage lates.
How right you are. They will raise your rate if you’re late on any payment anywhere that’s reported to a credit agency.
Sadly, bottom ifeeding is all that is left for these vampire insitutions. The jig is up. The economy and dollar are toast. Charging you a buck or more every time you need to access the ATM is the only these vultures can amasss such fortunes. Why should we be shocked KC? Most of these financial insitutions are not really producing anything of value, EXCEPT to themselves. They create money and debt out of thin air, or better, by pushing letters and numbers on a keyboard. They have given paper pushing an entirely new meaning, i.e. pushers.
Wasn’t implyinging that we really are shcoked, more of a rhetorical question. Just sayin’, ya know.
No implied shock (or awe) taken OCDan
Amen. Banks, Wall St boys “lost” nothing. Their private federal reserve arranged the printing of money which cost them 2 cent per paper dollar or less in touching the send button. How easy is that? Any loans, and real estate etc to collect on is “pure gravy” for them. The greasy money men did it again. Read history. The set up was perfect and they have made their money only the vast majority of the public “still ” does not know how it was done. They will learn after the pain and suffering of many. The greed of the Wall St boys have no guilt or shame. It’s simple a game of winners and loosers.
It’s also funny how they call these loans “affordability products.” Nobody would call a loan-shark (or a payday loan product) an “affordability product.”
Right, there may come a time when a polite euphemism for “go screw yourself” is “go I/O ARM yourself.”
Of course lenders want you to default before they will consider changing terms. Remember that the agency you call when trying to change your loan terms is only a “servicer”. They are not the actual lender. In this brave new lending world we have gotten ourselves into, the servicer want’s to hide the fact that you are going to default. Why? Because if it goes to the actual person who wrote the check for the loan, that person will invoke their guarantee and insist that the loan be bought back. Now the “servicer-lender” has already bought back more than they can handle (read “wholesale lender imploding”). They have to wait until there is no other option.
Imagine the conversation something like this: “Hey, Joe Bigbucks. The bogus loan we sold you last year says they can’t pay the rip off high interest we promised you. Can you lower that to something human?” Answer: “No need to. You just give me back my money, I’ll give you back this wortheless paper, and YOU can lower the interest rate. I’ll be waiting for my check. Thank-you very much.”
Interesting…
Good point.
Credit still seems pretty lose as investors really have not been burned yet. The SIV or whatever method for moving MBS like products is still paying out. So, investors that trade in the bonds have been torched but the fixed income and retirement funds have not been really hammered.
That means there is still a ways to go.
The other unamazing thing is companies like countrywide are finding ways of rolling out more and more loans. Basically they are trying to put off the day of reconing with their losses. Good strategy if you realize you are completely fooked. Mozillo and company are probably very very busy with their personal accountants hiding money, giving it to realitves, buying overseas…exc exc. Anything to make it impossible or difficult to recover.
You can bet that banks will be pushing out new loans to almost anybody to try to keep this thing rolling for a bit longer. Its going to get even uglier.
Who is buying the loans they are rolling out? Probably Freddie, Fannie and FHA. Thankyou FDR for providing the banks an easy way to take a toxic dump on taxpayers. Everytime the government creates a program to help the people, the people end up getting screwed.
“‘In general, the mortgage company wants to see a consumer default on three separate payments before considering a loan modification,’ says Elizabeth Schomburg, senior VP of the Family Credit
Well, by Jeebus, I here thenkin’ I’ll stop err’ makin’ that obscenely high house paymernt. Then maybe thery’ll listen to me about changing this bard martgage terims’. And Misterr Bailey, I thenk you give bard ardvice.
The GOOD , the BAD, and the soon to be ugly.
I was talking to a lender, a real one, and we were discussing the situation. He made it clear that the shrewd lenders, and there are a few out there, are going to force foreclosure on the people with equity first and help the poor schmuck who is upside down.
So you are a NASA engineer and the shuttle program is winding down. You have built up $200,000 in equity but cannot show long term employment prospect due to throttle down of your program. You operated as a good borrower making your payments and not drawing out equity.
Because of these asshats you become the soup dujor and your upside down asshat neighbors get a workout.
This lender assured me they are compiling data on people in related to real estate work that may have a short shelf life and still have equity. They are ground zero targets. You got equity you better not miss a payment. Owe more than the house is worth, settle back and watch them sweat.
What a f**ked up world this is.
I think it is very important to continue to focus on the profile of the HOPE NOW campaign. I am very suspicious of these letters, and I advise everyone to drum beat a movement to figure out whose getting targeted for salvation.
Who are the HOPE NOW recipients?
Why am I getting refinance calls from state agencies to refinance my mortgage at 3.5% ?
Sounds like the funky WIN (Whip Inflation NOW) policy of Gerald Ford. Oh, what an idiot!
The economy was a great concern during the Ford administration. In response to rising inflation, Ford went before the American public in October 1974 and asked them to “Whip Inflation Now.” As part of this program, he urged people to wear “WIN” buttons.[52] In hindsight, this was viewed as simply a public relations gimmick without offering any effective means of solving the underlying problems.[53] At the time, inflation was approximately seven percent.[54]
http://en.wikipedia.org/wiki/Gerald_Ford
The inflation rate in 1974 around around 12%
Voz,
That is exactly what I suspected Pig Men would do. However, I don’t have any evidence to post yet. I’ll keep looking.
The lenders had better hurry it up to screw Joe Equity. The Joes with a bit of equity are approaching zero equity as prices continue to drop, and soon will begin to join the ranks of Joe Underwater.
option arms are intriguing in this mix, as most of the broker generated business came with high yield spread premiums. this in turn caused most of these loans to have monster spreads (up to 6.50% over libor) and a hefty prepayment penalty. capped at 115% of original principal balance, these babies make it about 16 months (not five years) before the amortization triggers, then—–kaboom.
I think that the massive amount of fraud and speculation we’ve seen will mitigate the impact of the mortgage resets. Most flippers and mortgage fraudsters will default long before the reset hits. I’d like to see those charts re-cast to only include mortgages that are not currently in default.
Bm-darn good point-foreclosure vs. reset….what’s the diff.?
the only difference is one of timing, but that’s exactly the thing that people focus on when they look at those charts.
Any equity left in that home?
I would like to point out that if the lenders think they are “taking candy from a baby” by hoping to take homes which have a net equity left in them.
Those lenders are still playing Russian Roulette. First of all, there are probably a lot of fees involved with taking back a home. Cleanup, vandalism, court filing fees, paying back taxes, auction costs, costs involved with ultimately selling it to someone else.
Combine that with a real estate market which is steadily going down. Every day, that house is worth less than it was yesterday. NOT ONLY that, but the lenders know there will be MORE and MORE foreclosures coming down the pike. This is just the beginning.
I think the lenders got screwed with all of their “Tar Babies” they’re not going to make any money off this. It’s just a mess that really only started.
“Every day, that house is worth less than it was yesterday.”
Buying a home is throwing your money away on depreciating equity.
Do lenders notify a home “owner” that their loan will reset in 60 days?
If so, the impact of an ARM reset, would be felt before the payment has even increased.
I read somewhere (probably a link off this blog) that they have been sending letters or postcards lately. Never had an ARM so I know if that was always the case.
What amazes me is banks continue to write risky mortgages to this day! I just don’t get it, maybe it’s a “too late now” thought process?
Five Days of Misery
Investors’ confidence in financial companies was shaken last week. So were the share prices of some of the sector’s erstwhile stalwarts.
Stock Change 2007*
Company/Ticker Price Week YTD EPS P/E
Citigroup (C) $37.73 -11.5% -32.3% $3.74 10.1
American Intl
Group (AIG) 59.12 -4.9 -17.5 6.74 8.8
Bear Stearns (BSC) 102.16 -12.1 -37.2 11.12 9.2
Merrill Lynch (MER) 57.28 -13.3 -38.5 2.87 20.0
Washington Mutual 23.81 -16.7 -47.7 2.37 10.0
AMBAC Financial (ABK) 23.51 -46.9 -73.6 7.84 3.0
MBIA (MBI) 35.51 -29.5 -51.4 6.32 5.6
MGIC (MTG) 18.00 -7.1 -71.2 -2.50 NM
NM = Not Meaningful.
Sources: Bloomberg; Thomson Financial
CFC ???????????
Some more leverage anyone?
Moody is downgrade a buch of AAA CDO, SIV and what ever other bonds - as they downgrade, the big insurance, retirement plans and etc has to dump those bonds - making the financial crisis even worse