OPtion ARM Meltdown has Potential to be 5-10 bigger than Subprime was

[StarDoom]

Sorry for being off topic...but I love that pop-up ad that pops up here for that money lender. It tells you everything you need to know about ARMS.

[kats]

That's why it's been so important to get home prices rising again 
Right, as if you can get them to rise in the face of everything driving them down, eg the coming new wave of defaults.  What would we do for entertainment without the likes of xyu and other visitors from Faux News?

You're nuts. xyu is entirely right. There's another thread somewhere on people giving up on mortgages they are perfectly capable to paying--with no prior warning. They do that because they are sure they are underwater on the mortgage and they are not going to be suckers any more. It's a straightforward business decision. The general public's perception of whether house prices are rising or falling in an area determines how many creditworthy borrowers are going to quit paying. And there is a LOT at stake.

[wordnerd]

The ad at the top of the page says - Mortgage rates - select your program 

[Jeromie]

I ran across  an article today discussing a recent research project about jingle mailers.   The dominant voluntary mortgage defaulter  type has excellent credit right up to the point they  simply put the house back to the lender. The discussion was about  these people being very sophisticated.  It is just business in other words.    The average person going down from credit problems trys to keep the mortgage going at all costs before giving up.   Here the decision is made to just let the house go. This is particularly true in states like California that  statutorily make purchase money mortgages non recourse.   I do know that a lot of McMansions  put up by developers were financed using option arms to squeeze the biggest possible house value into a sale.  Probably every developer I was involved with in the last decade forced their sales staff to go for the most mortgage any way they could.  My sources are the tax people involved with developers.   My own input here came as the tax guy of the General Contractor and sometimes  Venture Partner  in  developments  put together by retail housing developers.   These people took great care of the bank people and mortgage lenders that financed their sales.  

It will be interesting to try and find material about the sophisticated jingle mailers being option arm people.  

[Jeromie]

The piece I ran into is Homeowners who strategically default on loans a growing problem   By  Kenneth R. Harney, Los Angeles  Times datelined September 20,2009.

I ran across it on inside automotive . com   

[Doomerific]

That's why it's been so important to get home prices rising again, even at the expense of billions in tax credits.
If homeowners expectations are that prices are again rising, they are much more likely to not walk away from their home. Again, its all a game of confidence, one that absolutely cannot be lost, or we are all in sh*t.

If it was only a game of confidence then money wouldn't be required, just propoganda. 

But it is not ONLY a matter of confidence, it is a matter of money, the more important ingredient because without it, you have no confidence.

Confidence did not cause the real estate bubble.  This was not money that people had saved up.  Without the generous help of banks, house prices could never have got to such a level.

Free flowing, handed out to anyone that could fog a mirror, money.  And more and more money is what will be required to keep prices rising.  Astronomically more.   

What good will it do to get people to throw in a few more months payments before the housing market tanks further?  Their payments are going up 5 to 10X, I doubt the value of the house matters much.  If you make X dollars, that's it, that's all you got.  Who cares if the house is worth a trillion, you can't make the payments, bottom line. 

The confidence game is lost, a no-win pickle; more money to stabilize housing and you lose confidence in the currency.  No more money to stabilize housing and the economy goes into the shitter.  It's just a matter of when, not if. 

This will have everyone cheering for an alternative to the dollar and with great fanfare the new world currency will be revealed, just as planned. 

[Doomerific]

I ran across  an article today discussing a recent research project about jingle mailers.   The dominant voluntary mortgage defaulter  type has excellent credit right up to the point they  simply put the house back to the lender. The discussion was about  these people being very sophisticated.  It is just business in other words.    The average person going down from credit problems trys to keep the mortgage going at all costs before giving up.   Here the decision is made to just let the house go. This is particularly true in states like California that  statutorily make purchase money mortgages non recourse.   I do know that a lot of McMansions  put up by developers were financed using option arms to squeeze the biggest possible house value into a sale.  Probably every developer I was involved with in the last decade forced their sales staff to go for the most mortgage any way they could.  My sources are the tax people involved with developers.   My own input here came as the tax guy of the General Contractor and sometimes  Venture Partner  in  developments  put together by retail housing developers.   These people took great care of the bank people and mortgage lenders that financed their sales.  

It will be interesting to try and find material about the sophisticated jingle mailers being option arm people.  

Do you know of any law against mailing random sets of keys to a bank? 

[Fishsurfer]

So IO loans were not combined with the ARM numbers? I cant imagine how many elderly and families are about to get tossed like a salad.  I know tons of people who got these things.  Hell, i think i saw a commerical for them a few days ago.

[picasso moon]

That's why it's been so important to get home prices rising again 
Right, as if you can get them to rise in the face of everything driving them down, eg the coming new wave of defaults.  What would we do for entertainment without the likes of xyu and other visitors from Faux News?

You're nuts. xyu is entirely right. There's another thread somewhere on people giving up on mortgages they are perfectly capable to paying--with no prior warning. They do that because they are sure they are underwater on the mortgage and they are not going to be suckers any more. It's a straightforward business decision. The general public's perception of whether house prices are rising or falling in an area determines how many creditworthy borrowers are going to quit paying. And there is a LOT at stake.

Right, it's all perception, a growing number of houses defaulted on and lots of homes hidden off the market which cannot be hidden forever will be trumped by positive attitudes.   
http://www.reuters.com/article/newsOne/idUSTRE58K29E20090921
US Mortgage Delinquencies Set Record, 9/21/09. It's a record 7.58%, number is up 32% YtoY. Via
http://theautomaticearth.blogspot.com           See today's entry (9/22/09) About Ali Baba, a bunch of stuff about the reality in housing.

[Nyokieniraq]

I don't get how the payment would be 5 - 10X more.

100k at 6% is a 600 a month.  Say you paid less than interest only and actually increased the principal.  I don't know the terms but imagine the bank capped you at increasing the principal by 25%.  These things reset at usually 5 years.  So 125k @ 6% for 25 years now would be just over $800.

So if you were paying about $400 a month for 5 years it would reset to just over $800 a month.  The payment doesn't even double but it does over what you were paying.  So I see how it could maybe double but 5 to 10 times more doesn't make sense.

Doesn't really matter though, If all I could pay is $400 then $800 would be a tough road.