Subprime-Alt A mess

[Rondaben]

Yes, I know that this is liberal rag, but this (http://www.dailykos.com/storyonly/2008/4/20/174324/855/262/497053) is an EXCEPTIONAL article--probably because it uses the Boston Federal Reserve report for it's data. Scary stuff. I'll summarize the points for you:

2004-2007 saw a large number of people getting 100%+ financing on thier mortgages. They have no equity and, in truth, now have a negative equity because of the fall in home values. Overall, the homeowner equity in the US is at about 48 percent overall-the lowest value on record.

Why is this a problem? Homowners with no or negative equity are 14 times more likely to default on their mortgages

But how big of a problem is this? It is not limited to the relatively small number of subprime borrowers. Primarilly it is the largest group, Alt-A.

Here are some numbers for subprime and Alt-A.

Total subprime mortgages: 3,303,991
Average balance: $180,872
Percent with at least 1 late payment in the last 12 months: 37.6%
Total subprime loans with no documentation of assets/income: 985,005
Total subprime with cash-out refinance: 1,630,869 (second mortgages)
Average Loan to value of subprime: 84.93%

Total Alt-A mortgages: 2,384,592 (28% are not owner occupied-i.e. speculator houses)
Average Alt-A balance: $299,117
Percent of Alt-A mortgages delinquent: 37%
Total Alt-A with no documentation of assets/income: 73.1%
Alt-A cashout refinanance: 38.2%
Average Loan to Value: 89.85%

Here is a chart from Credit Suisse that shows they types of mortgages, when they reset, and how much each reset is per month through the next 8 or 9 years:

http://photobucket.com/albums/f53/midtowng/optionarm.gif

Note that through 2008 we will be looking at dealing with subprime mess. After that, subprime goes away but the bigger problem of Option Arms (3-5 year taser rates then a BIG increase in payments) and ALT-A kicks into gear. Note that you are looking at 20-40 billion dollars per month in resets. Will there be money to refinance these houses that have negative equity? Will there be interest in staying in a mortgage that is higher than the value of the home?

I'm betting many will walk away from the house. We are only in the beginning of this mess.

[Issachar]

Thanks for posting this Rondaben. When I hear the talking heads on the tee vee saying we are near or at the bottom of this mess, all I can say is huh? It hasn't even started.

There will be naysayers, but we'll see.

Issachar

[windtalker]

Most people are clueless as to how bad this whole real estate/ housing thing is going to be......we all lose.

This is Mr. Mortgage ( he is spot on the housing debacle)

http://www.youtube.com/watch?v=tebO2v3qBVY

[cryo]

We took a 100% mortgage for our house last year, and of course the economy tanked afterward and our home value is dropping. Our previous neighborhood was rapidly declining, and I knew if we didn't get out the values were going to drop so much we'd never get out, so the 100% financing was necessary. Thankfully, we have a piggyback loan, so we are paying principal on the second loan, and we have 5 years before the rate resets, so we trust the values will go up again, or I guess we'll have to start paying more toward principal.

Thankfully, we got a wonderful house in a great neighborhood that should appreciate over the long haul quite well, while our old neighborhood in seeing values drop like a rock, so I know God watched over us and it was meant to be that it worked out the way we did.

[I'm all 67X]

It occurred to me yesterday that just about the only "glue" holding things in place as they are is trust. But what happens when people- normal, everyday, rational people lose trust and just say 'forget it' and stop paying their mortgages? Certainly, it is a reasonable scenario, many already have stopped given they are paying into a money pit...I think of folks whose value has dropped so significantly it's really not likely they will regain that value no matter what happens. A boon could return, sure, but it isn't likely as it more seems to be a leveling off period at best.

If masses of people lose trust, then what? Banks are already getting soft given the amount of FC cases they are weighed down with...I can't imagine what happens when it really gains momentum...

My tax preparer and new friend gave me a copy of Endgame last night...I didn't know that side of her. Can't wait to watch.

[Issachar]

It occurred to me yesterday that just about the only "glue" holding things in place as they are is trust.

67X, when you talk about "people losing trust", do you mean their losing trust in the US dollar? I take it as that .... just wanted to check though because if so, that is a great revelation. The gold standard was replaced by simply, people trusting. People are fickle. Trust in the government though is the "standard" of all fiat based economies. The drafters of the US Constitution knew this and is why they prohibited it in the Constitution.

Issachar

[lilbitsyspider]

Well last Sunday's paper had a foreclosure insert and most of the houses on it were between $250,000 to $400,000 bucks. In our area those houses look like mansions, they are big and beautiful. I cannot imagine the pain and disappointment from losing your home. Clothes, trips, fancy cars, super extra material goods aren't worth the loss of a roof over your head, not to mention the pain for the rest of the family from being up rooted.

There were very few homes on that foreclosure insert under $125,000. Most of them were the super deluxe deals.:ohno

What they really need to teach in high school is Dave Ramsey Financial Peace Univeristy.

[HisAlways]

Total subprime loans with no documentation of assets/income: 985,005
Total Alt-A with no documentation of assets/income: 73.1%

How can this be? NO DOCUMENTATION? No wonder it's a mess. When you're talking about this much money, and you have no documentation of assets or income, that is just pure insanity.

What has happened to accountability? What is really scary is the year 2011/2012.

Wonder why it drops so dramatically?

[Rondaben]

I think the article said that the majority of those loans were of the 3-27 or 5-25 teaser rate variety. Most of those stopped being in vogue in 2006 because of the rising dilinquencies. That kind of fits with the 2009-2011 resurgence.