What ARE the fundamentals?

[drunkle]

i suspect the only way people could afford to buy at 04-07 inflated levels was with the use of neg am type teaser type poke me in the brown eye with a sharp stick type loans. throw in the “guarantee” of increasing home prices, the promise of easy refinancing and you end up with “the highest rate of homeownership in history”.

these records, this data has got to be out there somewhere.

[(former)FormerSanDiegan]

DWCAP –

Here is a link to the oft-cited loan reset chart, developed by Credit Suisse, cited on Calculated Risk:

http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html

It shows the dollar amount of resets for loans that existed as of sometime in 2007 (note that some will have or will be refinanced, sold or defaulted before the scheduled reset date).

Note that the preponderance of loan dollars experiencing re-sets in 2007-2008 are sub-prime mortgages. These are typically at higher rates and reset based on higher margins than any other loan. A significant chunk of these will either result in defaults, with the remainder being worked-out, refinanced or (perhaps) simply held. After 2008, the majority of ARM resets are spread across the following categories:
Agency ARM (e.g. Conforming ARMs)
Prime
Alt-A

The bulk of the remaining are option ARMs, which have the nasty negative amortization feature.

The Prime, agency and Alt-A’s will likely be resetting at or near their initial rate if interest rates remain where they are or fall further. Which is the point I made previously.

The Option ARMs, while they may reset at or near their original rates, may result in payment spikes due to accumulated principal (neg am).

I have often read from folks in this forum and elsewhere that the second wave of resets will be what causes a protracted decline into 2013 or beyond. I believe, however, that we should consider that the impact of the first wave (largely sub-prime) has been to cause a slow down and a subsequent decline in rates. This decline may have the effect of dampening the impact of the second wave of resets (2009-2011), resulting in reaching a market bottom sooner than one would be led to believe by taking a cursory look at the reset chart.
Does this mean I expect the pain to stop anytime soon. No, not really. But I would certainly take interest rates into consideration in my outlook with respect to loan resets.

[(former)FormerSanDiegan]

DWCAP –

Here is a link to the oft-cited loan reset chart, developed by Credit Suisse, cited on Calculated Risk:

http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html

It shows the dollar amount of resets for loans that existed as of sometime in 2007 (note that some will have or will be refinanced, sold or defaulted before the scheduled reset date).

Note that the preponderance of loan dollars experiencing re-sets in 2007-2008 are sub-prime mortgages. These are typically at higher rates and reset based on higher margins than any other loan. A significant chunk of these will either result in defaults, with the remainder being worked-out, refinanced or (perhaps) simply held. After 2008, the majority of ARM resets are spread across the following categories:
Agency ARM (e.g. Conforming ARMs)
Prime
Alt-A

The bulk of the remaining are option ARMs, which have the nasty negative amortization feature.

The Prime, agency and Alt-A’s will likely be resetting at or near their initial rate if interest rates remain where they are or fall further. Which is the point I made previously.

The Option ARMs, while they may reset at or near their original rates, may result in payment spikes due to accumulated principal (neg am).

I have often read from folks in this forum and elsewhere that the second wave of resets will be what causes a protracted decline into 2013 or beyond. I believe, however, that we should consider that the impact of the first wave (largely sub-prime) has been to cause a slow down and a subsequent decline in rates. This decline may have the effect of dampening the impact of the second wave of resets (2009-2011), resulting in reaching a market bottom sooner than one would be led to believe by taking a cursory look at the reset chart.
Does this mean I expect the pain to stop anytime soon. No, not really. But I would certainly take interest rates into consideration in my outlook with respect to loan resets.

[(former)FormerSanDiegan]

DWCAP –

Here is a link to the oft-cited loan reset chart, developed by Credit Suisse, cited on Calculated Risk:

http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html

It shows the dollar amount of resets for loans that existed as of sometime in 2007 (note that some will have or will be refinanced, sold or defaulted before the scheduled reset date).

Note that the preponderance of loan dollars experiencing re-sets in 2007-2008 are sub-prime mortgages. These are typically at higher rates and reset based on higher margins than any other loan. A significant chunk of these will either result in defaults, with the remainder being worked-out, refinanced or (perhaps) simply held. After 2008, the majority of ARM resets are spread across the following categories:
Agency ARM (e.g. Conforming ARMs)
Prime
Alt-A

The bulk of the remaining are option ARMs, which have the nasty negative amortization feature.

The Prime, agency and Alt-A’s will likely be resetting at or near their initial rate if interest rates remain where they are or fall further. Which is the point I made previously.

The Option ARMs, while they may reset at or near their original rates, may result in payment spikes due to accumulated principal (neg am).

I have often read from folks in this forum and elsewhere that the second wave of resets will be what causes a protracted decline into 2013 or beyond. I believe, however, that we should consider that the impact of the first wave (largely sub-prime) has been to cause a slow down and a subsequent decline in rates. This decline may have the effect of dampening the impact of the second wave of resets (2009-2011), resulting in reaching a market bottom sooner than one would be led to believe by taking a cursory look at the reset chart.
Does this mean I expect the pain to stop anytime soon. No, not really. But I would certainly take interest rates into consideration in my outlook with respect to loan resets.

[(former)FormerSanDiegan]

DWCAP –

Here is a link to the oft-cited loan reset chart, developed by Credit Suisse, cited on Calculated Risk:

http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html

It shows the dollar amount of resets for loans that existed as of sometime in 2007 (note that some will have or will be refinanced, sold or defaulted before the scheduled reset date).

Note that the preponderance of loan dollars experiencing re-sets in 2007-2008 are sub-prime mortgages. These are typically at higher rates and reset based on higher margins than any other loan. A significant chunk of these will either result in defaults, with the remainder being worked-out, refinanced or (perhaps) simply held. After 2008, the majority of ARM resets are spread across the following categories:
Agency ARM (e.g. Conforming ARMs)
Prime
Alt-A

The bulk of the remaining are option ARMs, which have the nasty negative amortization feature.

The Prime, agency and Alt-A’s will likely be resetting at or near their initial rate if interest rates remain where they are or fall further. Which is the point I made previously.

The Option ARMs, while they may reset at or near their original rates, may result in payment spikes due to accumulated principal (neg am).

I have often read from folks in this forum and elsewhere that the second wave of resets will be what causes a protracted decline into 2013 or beyond. I believe, however, that we should consider that the impact of the first wave (largely sub-prime) has been to cause a slow down and a subsequent decline in rates. This decline may have the effect of dampening the impact of the second wave of resets (2009-2011), resulting in reaching a market bottom sooner than one would be led to believe by taking a cursory look at the reset chart.
Does this mean I expect the pain to stop anytime soon. No, not really. But I would certainly take interest rates into consideration in my outlook with respect to loan resets.

[(former)FormerSanDiegan]

DWCAP –

Here is a link to the oft-cited loan reset chart, developed by Credit Suisse, cited on Calculated Risk:

http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html

It shows the dollar amount of resets for loans that existed as of sometime in 2007 (note that some will have or will be refinanced, sold or defaulted before the scheduled reset date).

Note that the preponderance of loan dollars experiencing re-sets in 2007-2008 are sub-prime mortgages. These are typically at higher rates and reset based on higher margins than any other loan. A significant chunk of these will either result in defaults, with the remainder being worked-out, refinanced or (perhaps) simply held. After 2008, the majority of ARM resets are spread across the following categories:
Agency ARM (e.g. Conforming ARMs)
Prime
Alt-A

The bulk of the remaining are option ARMs, which have the nasty negative amortization feature.

The Prime, agency and Alt-A’s will likely be resetting at or near their initial rate if interest rates remain where they are or fall further. Which is the point I made previously.

The Option ARMs, while they may reset at or near their original rates, may result in payment spikes due to accumulated principal (neg am).

I have often read from folks in this forum and elsewhere that the second wave of resets will be what causes a protracted decline into 2013 or beyond. I believe, however, that we should consider that the impact of the first wave (largely sub-prime) has been to cause a slow down and a subsequent decline in rates. This decline may have the effect of dampening the impact of the second wave of resets (2009-2011), resulting in reaching a market bottom sooner than one would be led to believe by taking a cursory look at the reset chart.
Does this mean I expect the pain to stop anytime soon. No, not really. But I would certainly take interest rates into consideration in my outlook with respect to loan resets.

[DWCAP]

b33,
That is exactly what I was wondering. What were rates in 2003-2005. If I remember right, they were hitting 5-5.5% fixed. So sure, if he got a 5.75% ARM and today it goes to 5.8, who cares? But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years? Is it more likly that his inital rate was 1.75% and now it is going 5.8%? How is that any different (minus better borrower) than a 6% subprime going to 10%?

So what Joe Alt-A did was get a ARM at historical lows, and apply the difference from a fixed payment to get more house. Now his pretend payment is going up to a real payment, still at great low rates, but putting that morgage out of his affordability range. He would refinance, but the bank has dropped that product, denying him the out he was counting on, especially since he has little to no equity and likely no savings to speak of.

Barring a huge pay increase, government intervention, or someother windfall (stock options etc.) Joe Alt-A is in no better place than a “James Subprime”. He still used temporary interest rates to over extend himself on the bigger house that he could not afford with the expectation that appreciation and refinancing would save him.

Ok, so I overspoke in my post. Imagine if 50-60% of buyers in 2004 walked instead of 80%. RE would still be screwed.

[DWCAP]

b33,
That is exactly what I was wondering. What were rates in 2003-2005. If I remember right, they were hitting 5-5.5% fixed. So sure, if he got a 5.75% ARM and today it goes to 5.8, who cares? But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years? Is it more likly that his inital rate was 1.75% and now it is going 5.8%? How is that any different (minus better borrower) than a 6% subprime going to 10%?

So what Joe Alt-A did was get a ARM at historical lows, and apply the difference from a fixed payment to get more house. Now his pretend payment is going up to a real payment, still at great low rates, but putting that morgage out of his affordability range. He would refinance, but the bank has dropped that product, denying him the out he was counting on, especially since he has little to no equity and likely no savings to speak of.

Barring a huge pay increase, government intervention, or someother windfall (stock options etc.) Joe Alt-A is in no better place than a “James Subprime”. He still used temporary interest rates to over extend himself on the bigger house that he could not afford with the expectation that appreciation and refinancing would save him.

Ok, so I overspoke in my post. Imagine if 50-60% of buyers in 2004 walked instead of 80%. RE would still be screwed.

[DWCAP]

b33,
That is exactly what I was wondering. What were rates in 2003-2005. If I remember right, they were hitting 5-5.5% fixed. So sure, if he got a 5.75% ARM and today it goes to 5.8, who cares? But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years? Is it more likly that his inital rate was 1.75% and now it is going 5.8%? How is that any different (minus better borrower) than a 6% subprime going to 10%?

So what Joe Alt-A did was get a ARM at historical lows, and apply the difference from a fixed payment to get more house. Now his pretend payment is going up to a real payment, still at great low rates, but putting that morgage out of his affordability range. He would refinance, but the bank has dropped that product, denying him the out he was counting on, especially since he has little to no equity and likely no savings to speak of.

Barring a huge pay increase, government intervention, or someother windfall (stock options etc.) Joe Alt-A is in no better place than a “James Subprime”. He still used temporary interest rates to over extend himself on the bigger house that he could not afford with the expectation that appreciation and refinancing would save him.

Ok, so I overspoke in my post. Imagine if 50-60% of buyers in 2004 walked instead of 80%. RE would still be screwed.

[DWCAP]

b33,
That is exactly what I was wondering. What were rates in 2003-2005. If I remember right, they were hitting 5-5.5% fixed. So sure, if he got a 5.75% ARM and today it goes to 5.8, who cares? But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years? Is it more likly that his inital rate was 1.75% and now it is going 5.8%? How is that any different (minus better borrower) than a 6% subprime going to 10%?

So what Joe Alt-A did was get a ARM at historical lows, and apply the difference from a fixed payment to get more house. Now his pretend payment is going up to a real payment, still at great low rates, but putting that morgage out of his affordability range. He would refinance, but the bank has dropped that product, denying him the out he was counting on, especially since he has little to no equity and likely no savings to speak of.

Barring a huge pay increase, government intervention, or someother windfall (stock options etc.) Joe Alt-A is in no better place than a “James Subprime”. He still used temporary interest rates to over extend himself on the bigger house that he could not afford with the expectation that appreciation and refinancing would save him.

Ok, so I overspoke in my post. Imagine if 50-60% of buyers in 2004 walked instead of 80%. RE would still be screwed.

[DWCAP]

b33,
That is exactly what I was wondering. What were rates in 2003-2005. If I remember right, they were hitting 5-5.5% fixed. So sure, if he got a 5.75% ARM and today it goes to 5.8, who cares? But why would he take that ARM when he could get a fixed for that rate and lock it in for 30 years? Is it more likly that his inital rate was 1.75% and now it is going 5.8%? How is that any different (minus better borrower) than a 6% subprime going to 10%?

So what Joe Alt-A did was get a ARM at historical lows, and apply the difference from a fixed payment to get more house. Now his pretend payment is going up to a real payment, still at great low rates, but putting that morgage out of his affordability range. He would refinance, but the bank has dropped that product, denying him the out he was counting on, especially since he has little to no equity and likely no savings to speak of.

Barring a huge pay increase, government intervention, or someother windfall (stock options etc.) Joe Alt-A is in no better place than a “James Subprime”. He still used temporary interest rates to over extend himself on the bigger house that he could not afford with the expectation that appreciation and refinancing would save him.

Ok, so I overspoke in my post. Imagine if 50-60% of buyers in 2004 walked instead of 80%. RE would still be screwed.

[DWCAP]

FSD-
I have seen that reset chart alot. I constantly wonder how much of that is second’s, already sold, or flips; which will reduce the overall pain of resets.
I actually agree with you on the rests to the Neg Am. This in my mind is the thing that will get the CV/RSF’s, much more than subprime. The thing is, those people are also the ones with the best income growth right now. If they over extended themselves 10% or so, and have 5 years to make up for it, they will likely be ok. Add in that they will prob. be able to caugh up some money to grease the refi wheels so to speak and alot more of them will be ok. Prime borrowers are not subprime borrowers, to expect them to make or even have only the choices that a subprime does is incorrect. That doesnt mean that reset wont hurt, or that only prime borrowers bought in the nicer areas.

[DWCAP]

FSD-
I have seen that reset chart alot. I constantly wonder how much of that is second’s, already sold, or flips; which will reduce the overall pain of resets.
I actually agree with you on the rests to the Neg Am. This in my mind is the thing that will get the CV/RSF’s, much more than subprime. The thing is, those people are also the ones with the best income growth right now. If they over extended themselves 10% or so, and have 5 years to make up for it, they will likely be ok. Add in that they will prob. be able to caugh up some money to grease the refi wheels so to speak and alot more of them will be ok. Prime borrowers are not subprime borrowers, to expect them to make or even have only the choices that a subprime does is incorrect. That doesnt mean that reset wont hurt, or that only prime borrowers bought in the nicer areas.

[DWCAP]

FSD-
I have seen that reset chart alot. I constantly wonder how much of that is second’s, already sold, or flips; which will reduce the overall pain of resets.
I actually agree with you on the rests to the Neg Am. This in my mind is the thing that will get the CV/RSF’s, much more than subprime. The thing is, those people are also the ones with the best income growth right now. If they over extended themselves 10% or so, and have 5 years to make up for it, they will likely be ok. Add in that they will prob. be able to caugh up some money to grease the refi wheels so to speak and alot more of them will be ok. Prime borrowers are not subprime borrowers, to expect them to make or even have only the choices that a subprime does is incorrect. That doesnt mean that reset wont hurt, or that only prime borrowers bought in the nicer areas.

[DWCAP]

FSD-
I have seen that reset chart alot. I constantly wonder how much of that is second’s, already sold, or flips; which will reduce the overall pain of resets.
I actually agree with you on the rests to the Neg Am. This in my mind is the thing that will get the CV/RSF’s, much more than subprime. The thing is, those people are also the ones with the best income growth right now. If they over extended themselves 10% or so, and have 5 years to make up for it, they will likely be ok. Add in that they will prob. be able to caugh up some money to grease the refi wheels so to speak and alot more of them will be ok. Prime borrowers are not subprime borrowers, to expect them to make or even have only the choices that a subprime does is incorrect. That doesnt mean that reset wont hurt, or that only prime borrowers bought in the nicer areas.

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