Dr. Housing Bubble 05/20/09

[Crewleader]

The Truth about Option ARMs, Pick-a-Pay Mortgages, and Alt-A Loans: Looking at Wells Fargo, Bank of America, and JP Morgan. We are in the Eye of the $469 Billion Toxic Mortgage Hurricane and Silence is not Golden.

Let me be abundantly clear. We still have a Pay Option ARM and Alt-A mortgage problem. This will hit in full force in 2010 and we are already seeing many mortgage holders having trouble with actual recasts brought on by negative amortization. Yet there is a crew of people saying that Alt-A mortgage products will not bring any trouble because of the low interest rate environment. Unfortunately the low rate misses the bigger issue. Low rates are helping but the problem that we will be seeing is the massive onslaught of recasts, not resets that will be occurring over the next few years. This is a big reason why we won’t see a housing bottom in California until 2011 at the earliest. Many of these loans were made to supposedly better qualified borrowers in mid to upper priced areas. These areas will begin to crack like an egg dropped on the floor late in 2009. The Notice of Default tsunami will guarantee this much.

I’m am stunned that some people are actually saying that Alt-A mortgages or Pay Option ARMs will create little problems in the market. Okay. Then how about we remove the public-private investment program that conveniently has a cap with the FDIC of $500 billion? After all, if there isn’t any problem with toxic mortgages why should we have a toxic mortgage program that has the design to eat up $1 trillion in loans. Exactly. Let me break down the latest figures from data by none other than the Federal Reserve:

http://www.doctorhousingbubble.com/the-truth-about-option-arms-pick-a-pay-mortgages-and-alt-a-loans-looking-at-wells-fargo-bank-of-america-and-jp-morgan-we-are-in-the-eye-of-the-469-billion-toxic-mortgage-hurricane-and-silence/

[Yupster]

1. And aren't we just blowing the bubble right up again

with these 4.75 % mortgages?

There's no way the banks can come out okay on a 30 year 4.75 % mortgage.

[Warpy]

2. The people who say it's not a problem

are probably thinking the worst of the fraudulent paper has already defaulted, the phony loans given to any warm body at the end of the bubble market in an attempt to keep the comps up and unsold housing off the books.

They're right about that, but what they're missing is the fact that people with solid loans are experiencing huge paper losses due to the oversupply of housing on the market now and many of them are defaulting or will default in the near future.

Any loan written after about 2002 is at risk, IMO, especially those in "hot" markets like southern California, Phoenix, Las Vegas, and most of Florida.

When renting is significantly less expensive than ownership, look out below.

This is far from over and people who are looking only at the iffy paper that was written in 2006 and early 2007 need to look at the bigger picture.

[sendero]

4. This is the $640,000 question..

.... will people who HAVE the ability to pay remain in houses that are worth 30%+ less than their loan balance?

I've already seen lots of propaganda explaining that "paying your bills" is "your obligation". "Don't destroy your credit". Maybe.

My question would be "what would a banker do?". And I can tell you the answer as I'm sure most people can tell you. They would mail in the keys.

And really, how can you expect Joe Six Pack to act with any more responsibility than a banker would? I'm betting that most people will bail.

[Auggie]

3. In other words, the worst is yet to come... incredible graphic:

[Po_d Mainiac]

5. Yikes! Now this junk is on the books of the "Too big to fail" gang N/T