[quote=deadzone][quote=FormerSanDiegan]
If interest rates rise conmsiderably, it likely means that there is some sort of recovery. The important factors on these resets will be 1) how long do rates stay this low; and 2) when rates do go back up will they be doing so in a growth environment; 3) how underwater are the loans when the rates go up.
It’s amazing what a few years of low interest rates will do to knock down the principal in a loan.
The net effect of the “second wave” of resets is that the impact will be spread over a number of years (e.g. half a decade or more), as opposed to the intial wave, in which resets at 7-8% triggered defaults and most went bad over about a 12-month period.[/quote]
Are you serious? If interest rates rise considerably it is not a going to be because of a recovery. It will be because our foreign creditors have lost confidence and refuse to fund any more of our debt. That is already starting to happen, it is being covered up by the Feds purchasing programs.
Even if the economy improved, rising interest rates would still be disastrous. There are so many people out there who still have good jobs but are living on the edge due to their interest only and neg-am loans. I know and work with several people in this category. Just cause the economy improves doesn’t mean their salaries are all of a sudden going to jump. The payment shocks caused by rising interest rates will push many folks over the edge.[/quote]
Agree with deadzone on this.
Back in 2007/2008, interest rates were beginning to skyrocket, and it sure wasn’t because the economy was doing so well. The only reason we are seeing these low rates is because the Fed/govt (taxpayers!) are guaranteeing so much of our debt.
If the Federal Reserve and govt were to step back tomorrow, and not guarantee or provide any additional loans, what do you think would happen to interest rates?
