- This topic has 75 replies, 12 voices, and was last updated 16 years, 4 months ago by
SD Realtor.
-
AuthorPosts
-
August 6, 2008 at 12:37 PM #253710August 6, 2008 at 1:14 PM #253782
DaCounselor
ParticipantI think that the reference to a “second wave” of defaults is a bit misleading to the extent that there are numerous and distinct waves heading our way. The option-ARM wave is its own animal, and absent mass modifications it is going to hit and it will hurt.
The Alt-A/Prime loans will generate numerous waves, categorized by the loan terms. There are loans that upon reset will immediately become unaffordable and will go into default – that’s one wave. As FSD addresses above, we have already seen ’04/’05 vintage 3/1 ARMS reset with negligible impact on payments and thus minimal defaults. It should be noted that many 3/1 and 5/1 loans in SoCal do not go to P&I on the reset but have a longer (often 10 yr) IO period, which keeps payments lower.
However, it seems likely that the loan indices (LIBOR et al.) will eventually rise and thus cause payments to rise. This will likely take several years to play out. Due a rise in the indices (and possibly coupled with income reduction due to a weak economy) will we see another, later wave of defaults due again to inability to service the loan. So there will be successive waves generated by inability.
There is also an entirely separate category of potential defaults where ability is not an issue. These are the “business decision” waves that will be generated by borrowers with ability who decide to ruthlessly default because they are hundreds of thousands of dollars upside down and they can rent or buy a similar home for 1/2 of their present monthly outlay. The bigger the spread between servicing the current property and servicing a rental/new property, the more likely the ruthless default.
As to “bailouts”, I will restate the obvious which is that the recent housing bill is only the beginning.
August 6, 2008 at 1:14 PM #253497ParticipantI think that the reference to a “second wave” of defaults is a bit misleading to the extent that there are numerous and distinct waves heading our way. The option-ARM wave is its own animal, and absent mass modifications it is going to hit and it will hurt.
The Alt-A/Prime loans will generate numerous waves, categorized by the loan terms. There are loans that upon reset will immediately become unaffordable and will go into default – that’s one wave. As FSD addresses above, we have already seen ’04/’05 vintage 3/1 ARMS reset with negligible impact on payments and thus minimal defaults. It should be noted that many 3/1 and 5/1 loans in SoCal do not go to P&I on the reset but have a longer (often 10 yr) IO period, which keeps payments lower.
However, it seems likely that the loan indices (LIBOR et al.) will eventually rise and thus cause payments to rise. This will likely take several years to play out. Due a rise in the indices (and possibly coupled with income reduction due to a weak economy) will we see another, later wave of defaults due again to inability to service the loan. So there will be successive waves generated by inability.
There is also an entirely separate category of potential defaults where ability is not an issue. These are the “business decision” waves that will be generated by borrowers with ability who decide to ruthlessly default because they are hundreds of thousands of dollars upside down and they can rent or buy a similar home for 1/2 of their present monthly outlay. The bigger the spread between servicing the current property and servicing a rental/new property, the more likely the ruthless default.
As to “bailouts”, I will restate the obvious which is that the recent housing bill is only the beginning.
August 6, 2008 at 1:14 PM #253730ParticipantI think that the reference to a “second wave” of defaults is a bit misleading to the extent that there are numerous and distinct waves heading our way. The option-ARM wave is its own animal, and absent mass modifications it is going to hit and it will hurt.
The Alt-A/Prime loans will generate numerous waves, categorized by the loan terms. There are loans that upon reset will immediately become unaffordable and will go into default – that’s one wave. As FSD addresses above, we have already seen ’04/’05 vintage 3/1 ARMS reset with negligible impact on payments and thus minimal defaults. It should be noted that many 3/1 and 5/1 loans in SoCal do not go to P&I on the reset but have a longer (often 10 yr) IO period, which keeps payments lower.
However, it seems likely that the loan indices (LIBOR et al.) will eventually rise and thus cause payments to rise. This will likely take several years to play out. Due a rise in the indices (and possibly coupled with income reduction due to a weak economy) will we see another, later wave of defaults due again to inability to service the loan. So there will be successive waves generated by inability.
There is also an entirely separate category of potential defaults where ability is not an issue. These are the “business decision” waves that will be generated by borrowers with ability who decide to ruthlessly default because they are hundreds of thousands of dollars upside down and they can rent or buy a similar home for 1/2 of their present monthly outlay. The bigger the spread between servicing the current property and servicing a rental/new property, the more likely the ruthless default.
As to “bailouts”, I will restate the obvious which is that the recent housing bill is only the beginning.
August 6, 2008 at 1:14 PM #253673ParticipantI think that the reference to a “second wave” of defaults is a bit misleading to the extent that there are numerous and distinct waves heading our way. The option-ARM wave is its own animal, and absent mass modifications it is going to hit and it will hurt.
The Alt-A/Prime loans will generate numerous waves, categorized by the loan terms. There are loans that upon reset will immediately become unaffordable and will go into default – that’s one wave. As FSD addresses above, we have already seen ’04/’05 vintage 3/1 ARMS reset with negligible impact on payments and thus minimal defaults. It should be noted that many 3/1 and 5/1 loans in SoCal do not go to P&I on the reset but have a longer (often 10 yr) IO period, which keeps payments lower.
However, it seems likely that the loan indices (LIBOR et al.) will eventually rise and thus cause payments to rise. This will likely take several years to play out. Due a rise in the indices (and possibly coupled with income reduction due to a weak economy) will we see another, later wave of defaults due again to inability to service the loan. So there will be successive waves generated by inability.
There is also an entirely separate category of potential defaults where ability is not an issue. These are the “business decision” waves that will be generated by borrowers with ability who decide to ruthlessly default because they are hundreds of thousands of dollars upside down and they can rent or buy a similar home for 1/2 of their present monthly outlay. The bigger the spread between servicing the current property and servicing a rental/new property, the more likely the ruthless default.
As to “bailouts”, I will restate the obvious which is that the recent housing bill is only the beginning.
August 6, 2008 at 1:14 PM #253664ParticipantI think that the reference to a “second wave” of defaults is a bit misleading to the extent that there are numerous and distinct waves heading our way. The option-ARM wave is its own animal, and absent mass modifications it is going to hit and it will hurt.
The Alt-A/Prime loans will generate numerous waves, categorized by the loan terms. There are loans that upon reset will immediately become unaffordable and will go into default – that’s one wave. As FSD addresses above, we have already seen ’04/’05 vintage 3/1 ARMS reset with negligible impact on payments and thus minimal defaults. It should be noted that many 3/1 and 5/1 loans in SoCal do not go to P&I on the reset but have a longer (often 10 yr) IO period, which keeps payments lower.
However, it seems likely that the loan indices (LIBOR et al.) will eventually rise and thus cause payments to rise. This will likely take several years to play out. Due a rise in the indices (and possibly coupled with income reduction due to a weak economy) will we see another, later wave of defaults due again to inability to service the loan. So there will be successive waves generated by inability.
There is also an entirely separate category of potential defaults where ability is not an issue. These are the “business decision” waves that will be generated by borrowers with ability who decide to ruthlessly default because they are hundreds of thousands of dollars upside down and they can rent or buy a similar home for 1/2 of their present monthly outlay. The bigger the spread between servicing the current property and servicing a rental/new property, the more likely the ruthless default.
As to “bailouts”, I will restate the obvious which is that the recent housing bill is only the beginning.
August 6, 2008 at 10:10 PM #253841latesummer2008
ParticipantAlt-As and ARMS are pointed at coastal areas. Subprime has taken care of the outlying areas and the cancer is spreading inward. Many of these loans recast quicker than 5 or 7 years if the LTV reaches 110-125% In a declining market, that can cause a world of hurt quicker than one might think. Santa Monica, Brentwood, Beverly Hiils, Malibu and many of the affluent areas on the Westside of LA are now in the crosshairs.
I’m sure La Jolla, Coronado, Del Mar and others in San Diego are as well.
August 6, 2008 at 10:10 PM #254009ParticipantAlt-As and ARMS are pointed at coastal areas. Subprime has taken care of the outlying areas and the cancer is spreading inward. Many of these loans recast quicker than 5 or 7 years if the LTV reaches 110-125% In a declining market, that can cause a world of hurt quicker than one might think. Santa Monica, Brentwood, Beverly Hiils, Malibu and many of the affluent areas on the Westside of LA are now in the crosshairs.
I’m sure La Jolla, Coronado, Del Mar and others in San Diego are as well.
August 6, 2008 at 10:10 PM #254018ParticipantAlt-As and ARMS are pointed at coastal areas. Subprime has taken care of the outlying areas and the cancer is spreading inward. Many of these loans recast quicker than 5 or 7 years if the LTV reaches 110-125% In a declining market, that can cause a world of hurt quicker than one might think. Santa Monica, Brentwood, Beverly Hiils, Malibu and many of the affluent areas on the Westside of LA are now in the crosshairs.
I’m sure La Jolla, Coronado, Del Mar and others in San Diego are as well.
August 6, 2008 at 10:10 PM #254075ParticipantAlt-As and ARMS are pointed at coastal areas. Subprime has taken care of the outlying areas and the cancer is spreading inward. Many of these loans recast quicker than 5 or 7 years if the LTV reaches 110-125% In a declining market, that can cause a world of hurt quicker than one might think. Santa Monica, Brentwood, Beverly Hiils, Malibu and many of the affluent areas on the Westside of LA are now in the crosshairs.
I’m sure La Jolla, Coronado, Del Mar and others in San Diego are as well.
August 6, 2008 at 10:10 PM #254125ParticipantAlt-As and ARMS are pointed at coastal areas. Subprime has taken care of the outlying areas and the cancer is spreading inward. Many of these loans recast quicker than 5 or 7 years if the LTV reaches 110-125% In a declining market, that can cause a world of hurt quicker than one might think. Santa Monica, Brentwood, Beverly Hiils, Malibu and many of the affluent areas on the Westside of LA are now in the crosshairs.
I’m sure La Jolla, Coronado, Del Mar and others in San Diego are as well.
August 6, 2008 at 10:49 PM #253855SD Realtor
ParticipantCounselor well authored post. I agree entirely with your thoughts. Especially the last sentence.
August 6, 2008 at 10:49 PM #254024ParticipantCounselor well authored post. I agree entirely with your thoughts. Especially the last sentence.
August 6, 2008 at 10:49 PM #254033ParticipantCounselor well authored post. I agree entirely with your thoughts. Especially the last sentence.
August 6, 2008 at 10:49 PM #254090ParticipantCounselor well authored post. I agree entirely with your thoughts. Especially the last sentence.
-
AuthorPosts
- You must be logged in to reply to this topic.