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?
Until Congress amends the Bankruptcy Code to allow the Bankruptcy Court to modify mortgages on residential property will the economy be able to address the reality of the comming foreclosure crisis. We have already allowed too many personsal lives be destroyed by the greedy self-interests of those who have not been able to recognize their own vested self-interests and have opposed the so-csalled “cram down” provision to the Code. Economic and societal needs rerquire passage of the amendment now…before more individusal aspirations are thwarted.
Gee, what a great idea Eugene has. Let those of us who have continued to pay our mortgages and the rest of the taxpayers subsidize all of these poor ignorant people who had no idea what they were getting themselves into. Yes, maybe some of these people were taken advantage of by scamming mortgage brokers. But how can somebody making 50K per year and barely able to pay rent of $1500 per month think they can really afford a home for 500K?? And why should I help that idiot? Its almost as bad as the bank bailouts. Let them fail. Let the homeowner declare BK and be done with it.
Aside from that, the banks are controlling the politicians thru their pay offs so do you really think Congress and any President be they Democrat or Republican would ever allow this cram down provision to become law?
Tom,
Lets just say if the demorcrats wouldnt have passed through congress a few years back by saying its discrimination not to give EVERYONE a loan, Well then we wouldnt be in this mess, Lets point the fingers who passed this through congress that EVERYONE QUALIFY’S Im a Realtor, I know what im talking about do your homework get to the Root of the issue its a well known fact this was passed through congress(everyone qualifies) otherwise you would get it for discrimination… Thats why they have to clean up the mess now with your tax dollars .. but they will never tell you that, so keep fighting with everyone else & pointing fingers at everyone else thats what they want. Its called freedom ha, (what no spell check?)
Even if cram downs were allowed on primary residences, it probally wouldn’t help matters. Biforcation requires the debtor to pay the ‘crammed down’ amount in 5 years at current market rates. The vast majority of people seeking bankruptcy protection wouldn’t be able to meet that requirement. Thus the discussion is one big red herring.
Fact is, we are where we are. Blame who you want! It changes nothing! It’s time to get off the blame game and just fix the problem. Repubs blame the Dems and vice versa, but never a real fix. Finally someone is making an honest effort to fix problems and neither groups supports. Corps rule the day with the dollar. He who has the Gold makes the rules. Get some gold, make your own rules! Problem solved.
I’m with Tom (and other like minds) on this. Most of the people in trouble right now are because their eyes were larger than their wallets and they ignored the fine print as well as the bold print on the HUD-1. A lot of talk is made about the greed of lenders, which is a well known caution, but what about the greed of the borrower that wants the bigger, fancier house or cashes out their equity at the time to buy a fancy car, spend it on a 2-week cruise or some other consumable just to keep up with the Joneses? I can empathize with people having a hard time because I’ve been in that boat. But I’ve learned from my past to develop better financial habits and I have no sympathy for those that haven’t and continue to bite off far more than they can chew.
Eugene’s post is a typical dangerous communist schpill that fixes nothing but creates huge problems for this market system for generations in the future. I don’t want my kids to live under Communism in 20 years only because in the heat of the battle with this CYCLICAL recession our country decided to listen to the “Eugenes” of this world and decided that we will regulate and cram down everything possible and by this completely eradicate market forces. Lenders give money when the market demands it and hold it back when the market is down, prices rise and fall based on the market forces, same with stocks and everything else. Let the economic forces take care of the correction, let them create future enrichment opportunities, you must believe in Capitalism, it’s a live self-adjusting system that works well and will work in the future, stop trying to predict everything and overregulate everything, it’s impossible and won’t work. “Cramming down” the mortgages will not solve anything! First off, BK judges and trustees are not qualified to review appraisals, property market analysis, and make decisions on what’s appropriate or not based on the MARKET forces, not the borrower’s ability to pay. Secondly, when you “cram down” the mortgage, you benefit one borrower, but you forcefully erase somebody else’s pension fund, mutual fund, 401(k) that was used to fund this loan, why do they deserve to be punished by your BK trustee and you get to keep the house?. And finally, borrowers’ problems have little to do with the amount of oustanding mortgage but more with the amount of income, ability to earn income, capability to create business or employment opportunities, belief in his/her own earnining value, and those you just can’t “cram down” into anybody. I lost my house too, but I looked at it as a wake-up call, I look at it as a new beginning, I spent a month analyzing what I did wrong and what I’m going to do differently in the future, which I would have never done if all I had to do was to “cram down” my lower payments and my tears of self-pity into my lenders behind. Your excuses should not determine your future.
Hey Way, Way to go, I like that make your own rules, Probably would generate some good old common sense back into the system…
There are so many to blame for the mess we are in and the none more than the government for it’s role in making credit/home ownership attainable to un-creditworthy people fueled by equal opportunity groups and backed by our friends Fannie and lets not forget Freddie. In the liberals mind, “it’s just being fair and nice to everyone”, no (you don’t qualify) is viewed as an evil word. And what about those credit rating agencies giving AAA ratings to CDO;s, they should be round up and stoned in the public square then people might think twice about being so greedy, boy have we digressed as a nation. Thanks Bill Clinton and the like for the mess you’ve got us in, oh and you too George, you could have done something.
To A. J. and all. A.J. your last sentence of your Sept.9th comment (“Your excuses should not determine your future.”) made me stop and think for a moment.
How many times do the masses really think that way. We use an excuse to why we are, or why we are not. Seems to me your month analying your situation allowed you to adjust to a new target of LIVING. Good for you!
“Your excuses should not determine your future.”
Does of us that see a potential here, Will. And hopfully we can be in the position to help those others back on track.
Well, I was a loan officer 3-4 years ago and Ill just say that if you had a pulse and a credit score you could buy a house, not just a house, but a 300,000 house! I would gather up the borrowers information, load it into countrywide underwriting system, and hit submit.I would wait, and presto! Approved! they would give guidelines like “must show most recent pay stub” or “if stated, must have at least 2 years same employment history”. duhhh! who is gonna say otherwise if nobodys checking. I SAY, if you are playing “blame” game, its gotta be the banks and their loose guidelines, ESPECIALLY CHL. And, they were so lax with their guidelines because FM Fmac set those guidelines, AND since they are gvt backed, i guess you could blame the govt for making them so lax. there you have it. NOW, what’s that matter? what good does blame do? lets fix it before the whole country turns into a dirty, filthy, depressed, boarded up, deserted, shitHOLE like Detroit or the southside of chicago. If you look at the #’s, where are the majority of the defaults and board ups and dumps. they are in the depressed “black” neighborhoods. call it racism or prejidice. I call it FACT. Its the same places you see crime, murders, fraud, liqour stores and the check cashing places right next to it so they can cash their govt checks. So, there you have it.
I just read a report that has not 1, not 10, not 100, but hundreds of banks going under in 2010… not to mention home defaults.
All indications are that the second wave of foreclosures will not be nearly as severe as what we have gone through. Although this is a very well written article I cannot agree with your conclusions