Hybrid Loan Time Bomb. Warning: you need courage to read that link. The ARM problem is big, IT IS 12% of SFH LOANS!
There may not be a way to refinance out of it, because rising defaults and new FDIC regulations will tighten lending standards. Most of the ARM market is sub-prime mortgages, and those people have a high chance of NOT qualifying for a refinance next year, under tighter credit standards.
You all can get mad at me for seeing “black”, but it simply does NOT look good for exotic lending. It’s downright scary, and it is the factor that us bears believe will really pop this bubble.
Some snippets from the above link.
Senior Economist of the Mortgage Bankers Association, senior Michael Fratantoni, says that the five-year adjustables that were issued during the refi craze of 2002-03 are a concern.
“The estimate is that in 2007, more than a trillion dollars worth of hybrids are going to hit their first reset date,” he said.
That one chunk of hybrid loans represents 12 percent of the $8.8 trillion in single-family home loans outstanding nationwide.
“We don’t have enough data to know how big a problem this will be,” said David Berson, chief economist at Fannie Mae, the nation’s largest mortgage packager.
Paul Kasriel, chief economist at Chicago-based Northern Trust, wrote that “Asset bubbles are characterized by cheap credit. Usually what bursts a bubble is higher cost of credit, because that is what inflates the bubble, is cheap credit.”
Making matters worse, it is the the sub-prime lenders issuing the most adjustable-rate mortgages. With those who participate in the survey, 80 percent of their loans were ARMs compared to 55 percent in the broader market.
