The coming Alt A implosion

[(former)FormerSanDiegan]

The coming Alt A implosion is one of the centerpieces for my macro arguments about not buying a house now.

Certainly some vintages of Alt-A ARMs are performing very poorly. (see here: http://globaleconomicanalysis.blogspot.com/2008/04/closer-look-at-arms-reset-problem.html)

I think the option ARMs are a much bigger problem than ALT-a in general.

Consider the reset chart shown below. The bulk of the ALT-A loans start resetting in 2010-2011. SInce this chart was put together in 2007, the bulk of these are likely 5/1 ARMs originated in 2005-2006.

Q. What was the typical rate for 5/1 ARMs originated in 2005-2006 ?

A. between 5.5 – 6%

Q. If these loans were to reset today, what rate would they reset to ?

A. about 5.5 %

I have to conclude that problems in the “second wave” of mortgage resets will more likely be due to Option Arms than Alt-a resets.

[img_assist|nid=7668|title=Reset Chart|desc=|link=node|align=left|width=466|height=428]