David Kirkpatrick

September 22, 2009

The next shoe? Option ARM mortgages

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 5:42 pm

I’ll have to admit, this is one mortgage vehicle I’ve never heard of, and it sounds pretty bad. I thought I was ahead of the curve 0n commercial paper, but clearly the insanity at all levels of real estate are going to reverberate for quite some time.

From the first link:

The federal government and states are girding themselves for the next foreclosure crisis in the country’s housing downturn: payment option adjustable rate mortgages that are beginning to reset.

“Payment option ARMs are about to explode,” Iowa Attorney General Tom Miller said after a Thursday meeting with members of President Barack Obama‘s administration to discuss ways to combat mortgage scams.

“That’s the next round of potential foreclosures in our country,” he said.

Option-ARMs are now considered among the riskiest offered during the recent housing boom and have left many borrowers owing more than their homes are worth. These “underwater” mortgages have been a driving force behind rising defaults and mounting foreclosures.

In Arizona, 128,000 of those mortgages will reset over the the next year and many have started to adjust this month, the state’s attorney general, Terry Goddard, told Reuters after the meeting.

“It’s the other shoe,” he said. “I can’t say it’s waiting to drop. It’s dropping now.”

March 6, 2009

Mortgage default rates stunning

This figure is not so stunning — almost 50 percent of sub-prime adjustable rate mortgages (ARMs) are in arrears or foreclosure. Everyone knows these are the most toxic of the toxic assets being bandied about by economic “pundits.” Well, technically these mortgages make up the components of the toxic assets.

The stunning figure is 12 percent of all mortgages are either behind in payment or in foreclosure. That is not good news for any hope of an economic recovery from this financial crisis. The floor hasn’t been found, and probably is really too far below us to even be fathomed right now.

On that cheery note, hope everyone has a great weekend!

From the link:

The reckless lending practices in states like Florida, California and Nevada that were the epicenter of the housing crisis are no longer driving up the nation’s delinquency rate. Instead, the foreclosure crisis now is being fueled by a spike in defaults in states like Louisiana, New York, Georgia and Texas, where the economies are rapidly deteriorating and thousands are losing their jobs.

A record 5.4 million American homeowners with a mortgage of any kind, or nearly 12 percent, were at least one month late or in foreclosure at the end of last year, the Mortgage Bankers Association reported. That’s up from 10 percent at the end of the third quarter, and up from 8 percent at the end of 2007.

Prime and subprime fixed-rate loans saw sharp increases in the fourth quarter, a sign that the problem is now the economy.

“We’re seeing increases in fixed-rate categories and that’s where the problems are coming from,” said Jay Brinkmann, the group’s chief economist. “The foreclosure picture is more clearly driven by the jobs market.”

That trend highlights one of the biggest challenges confronting the Obama administration’s mortgage relief plan launched this week. While the $75 billion plan could help change the loan terms or refinance up to 9 million homeowners, unemployed borrowers will have a hard time qualifying.

On Thursday, the Labor Department said new unemployment claims last week totaled 639,000, lower than expected, but still at elevated levels. Factory orders also slipped for the sixth month in a row in January, the Commerce Department reported.

“There can be no doubt that employers continue to shed labor at a frightening pace, with no end in sight,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a client note Wednesday.

The key is what kind of workers are losing their jobs, Brinkmann said. Unemployment for people with college degrees, some college education or technical training _ those most likely to own homes and have prime fixed-rate loans _ has nearly doubled over the past six months.