I’m sure you know by now that it was the first wave of defaults in “subprime” mortgages that helped spark today’s economic meltdown. What you might NOT know is that there’s a whole second wave of mortgages in the pipeline that are just as toxic and just as large as the first. This second wave may be just as far reaching.
You can see that the first peak in subprime loan “resets” arrived smack dab in the middle of 2008. And many billions in bank write-downs, along with trillions of dollars in market losses, immediately followed.
This second wave of toxic property loans, made up of so-called “option ARM” or “Alt-A” loans, won’t hit peak resets until 2011.
What are these toxic loans? They are the fancy mortgages snapped up by middle Americans to buy homes nobody imagined would be worth only a fraction of their selling price just two years later.
And just like in the subprime wave, these loan contracts also carry a “reset” risk in the fine print, when already high monthly mortgage payments could as much as double — right at the height of the second biggest market meltdown since the Great Depression.
Millions of additional consumers will freeze up as their finances go over a cliff. More bank losses will drag down even more so-called “blue chip” retirement portfolios, and the impact of the consumer bust will get “multiplied” yet again. Millions of additional Americans could lose everything.
Will this present us with new real estate investment opportunities? Very likely. In addition to the large number of foreclosures and bank REOs, most real estate markets around the country will continue to offer investors with low-priced real estate due to an ongoing buyer’s market sustained by excess inventory.
What do you think the upcoming second wave of mortgage “resets” will bring us?