San Diego Housing Bubble News and Analysis

Libor + 2.25%

Aug 31 12-month LIBOR : 1.3%

Fully Indexed ARM rate : 3.55 % --> nearest 1/8th

RATE : 3.625%

I thought it would be fun to track the reset rates as we go through the next wave of resetting loans.
Not much surf here.

Too true FSD, too True. Current rates on adjustable loans can all to often move DOWN, easing payments for the next 6-12 months. Interesting to think that even with that we still have increasing foreclosure actions.

But lets go back to this time two years ago (ie before the recession started) and see what 12 month LIBOR is.

----->5.275%. (sept 07)
+2.25 and your rounding 1/8th and we have 7.6%.

Going back to 2002-2004, we see the same 1.3-1.4% LIBOR rates back when FED overnight lending rates were 1% HIGHER, and they hadnt flooded the market buying nearly ever piece of trash paper they could pick up. Or have to bail out the largest insitiutions from their own stupidity with direct infusions of capital, everyone is looking at you citi and BOA.

So rates have hit what seems to be a structeral bottom and can only go up from here, albeit I have a feeling not for atleast another year so the fed can get another bubble going in something.

Alot of the people in these loans also have 2nds as part of their 80/20 deal, with the 2nds tied to prime which is also down. My neighbor is in one of these and he says his payments are down almost $700/month and his prop taxes are down over $100/month since his downward modification. Those are some big dollars every month.

I guess if a reset includes going from IO to principle as well then that may change things, but from everything I know many of the 3/1 and 5/1 ARMS that were common in SD were IO for 10 yrs. With rates at loan inception around 5.5%, the 12 month LIBOR would need to climb to 3.25% (assuming a 2.25% margin) just to get back to the initial payment. I think on these loans we are years away from seeing anyone in distress due to rates - may not see anyone in trouble until the IO period runs out and rates are up.

So there are a slew of people that are way upside down now but their payments are shrinking dramatically to the point of possibly being cheaper than renting a comp. So they are sitting and waiting for the end game with these loans while enjoying low payments. These loans are not even on deck yet, they are still in the dugout, hell they may even be still in the parking lot and not even in the stadium yet. They are just another piece of this fiasco that is going to have to play out eventually.

Update for Sept 30, 2009

For those who have alt-A or Prime ARM loans tied to the 12-month LIBOR. This month's reset rate is ...

Libor + 2.25%

Sept 30 12-month LIBOR : 1.26%

Fully Indexed ARM rate : 3.51 % --> nearest 1/8th

RATE : 3.625%

Well I guess when the bond market falls apart all the surf will be up.

I stopped updating this because it was so boring (which was kinda the point in the first place), but here's the updates since September 2009 ...

For those who have alt-A or Prime ARM loans tied to the 12-month LIBOR + 2.25% margin (rounded up to the next 8th).

Sept-Dec 2009
September 12-month LIBOR : 1.26%
fully-indexed ARM reset RATE : 3.625%

October 12-month LIBOR: 1.33
fully-indexed ARM reset RATE : 3.625%

November 12-month LIBOR: 1.20
fully-indexed ARM reset RATE : 3.5%

December 12-month LIBOR: 1.02
fully-indexed ARM reset RATE : 3.375%

2010

January 12-month LIBOR: 0.98
fully-indexed ARM reset RATE : 3.25%

February 12-month LIBOR: 0.85
fully-indexed ARM reset RATE : 3.125%

Most of these loans had starting rates in the mid 5% range, so they will either go down significantly ort stay the same in cases where there is an interest rate floor.

You should graph this so you can get in on that "love that chart" action : )

Many teaser rate loans adjust up automatically, regardless of interest rates.

Also refinance is not possible with bad credit and/or no equity.

Most loans have a teaser (start) rate and a fully indexed rate. If the start rate is below the fully indexed rate when the index is near zero, then yes these would adjust upward, regardless of rates.

However, the vast majority 5-year Prime and alt-A ARMs originating 5 years ago (and resetting currently) had start rates in the mid 5% range and 1-year or 6-momth adjustable rates that are set by the index + 2 to 3%. (less than 4% reset rates currently).

Although I think 80% of option ARMs (as opposed to prime and alt-A) are toast in the long run , that category, too contains many cases of reset rates falling to the point where they are no longer neg-am (in the short run).

I agree. No refi if underwater or bad credit. However, until rates go up, these resets are not the trigger many expected to be pulled during 2009-2010. Alt-A and Prime adjustable loans are no less affordable to these owners than they were 5 years ago (well, at least the 70% of them that are still fully employed).

It's all about wherewithal of the owners. ARMs that reset at or below original rates will allow many of these owners to maintain monthly payments.
The can gets kicked down the road.

OK. Here's a chart

7%-
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6%-
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........... (Doug Henning Pic)
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5%-
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4%-
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.^^^^^^^^^^^^^^^^-------------___________
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3%-
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2%-
.
....AUG....SEP....OCT....NOV....DEC....JAN....FEB

Great chart! That chart says it all!

Yes, I agree.

Government actions, by lowering interest rates, give people a reprieve. Do they have long term wherewithal? Time will tell...

Ha! Hilarious FSD... nicely done.

rich