$4.5 Trillion Reasons Why - Seque
As we previously noted, over the next 3 years there are 4.5 Trillion reasons why the real estate bubble story may not have a so happy ending.
Fleck's latest on the upcoming "ARM" debacle, is a must read. Why? An intriguing discussion of how the Fed has "engineered" this whole debacle. "financial intermediaries employ a variety of 'value at risk' analytical techniques, along with a wide range of credit instruments, to quantify risk within narrow bounds.
Ironically, the predictability borne of the Fed's measured response and transparency encourages (my emphasis) risk-taking and speculative trading. As the Fed lowers uncertainty about the near term, investors grow bolder."
"According to a UBS study: About $137.5 billion face resets this year and about $524 billion face resets over the next four years." These figures bare examination as they widely differ with other studies which estimate 2006 $500B; 2007 $Trillion; 2008 $Trillion.
Key excerpts regarding future lender and borrower plight follow. What we'll soon be seeing on a regular basis is also portrayed by The Wall Street Journal last week, in a story titled "Homeowners Start to Feel the Pain of Rising Rates"...
It begins with the story of a Detroit accountant who was looking to lower her monthly payments. In 2004, she refinanced a $312,000 mortgage via an option adjustable rate mortgage that offered various payment choices, as do so many of these plans.
Her (introductory) rate of 2.3% is now up to 8.75%, and her loan balance has grown to $324,000. Since she's unable to refinance (in part, due to a nasty prepayment penalty), she must sell her house.
The problem: Because everyone else is pretty much in the same boat and Detroit's economy isn't so swell, she can't -- even with having reduced her original asking price of $470,000 to $270,000. (Note: That would leave her $54,000 in the hole.)
At some point (sooner, rather than later), there will be a housing finance related "accident," due to an incendiary combination of housing debt and derivatives. That is what lies ahead. What remains to be seen is exactly when the financial bomb gets detonated.
Meanwhile, though this mess has just started, the end game is (and has been) very predictable, as the story states: "Some borrowers are opting to sell homes they can no longer afford."
Unfortunately, folks like the accountant from Detroit are going to find that as this occurs, there won't be enough buyers, as many people will need to sell.
The inevitable scenario: "Some California brokers say they are beginning to see a return of 'short sales' -- transactions in which the sales price isn't large enough to cover outstanding loans."
Soon, this term will be replaced by "jingle mail" This is when the borrower mails the house keys back to the lender and walks away from the mortgage & house....
Fleck's latest on the upcoming "ARM" debacle, is a must read. Why? An intriguing discussion of how the Fed has "engineered" this whole debacle. "financial intermediaries employ a variety of 'value at risk' analytical techniques, along with a wide range of credit instruments, to quantify risk within narrow bounds.
Ironically, the predictability borne of the Fed's measured response and transparency encourages (my emphasis) risk-taking and speculative trading. As the Fed lowers uncertainty about the near term, investors grow bolder."
"According to a UBS study: About $137.5 billion face resets this year and about $524 billion face resets over the next four years." These figures bare examination as they widely differ with other studies which estimate 2006 $500B; 2007 $Trillion; 2008 $Trillion.
Key excerpts regarding future lender and borrower plight follow. What we'll soon be seeing on a regular basis is also portrayed by The Wall Street Journal last week, in a story titled "Homeowners Start to Feel the Pain of Rising Rates"...
It begins with the story of a Detroit accountant who was looking to lower her monthly payments. In 2004, she refinanced a $312,000 mortgage via an option adjustable rate mortgage that offered various payment choices, as do so many of these plans.
Her (introductory) rate of 2.3% is now up to 8.75%, and her loan balance has grown to $324,000. Since she's unable to refinance (in part, due to a nasty prepayment penalty), she must sell her house.
The problem: Because everyone else is pretty much in the same boat and Detroit's economy isn't so swell, she can't -- even with having reduced her original asking price of $470,000 to $270,000. (Note: That would leave her $54,000 in the hole.)
At some point (sooner, rather than later), there will be a housing finance related "accident," due to an incendiary combination of housing debt and derivatives. That is what lies ahead. What remains to be seen is exactly when the financial bomb gets detonated.
Meanwhile, though this mess has just started, the end game is (and has been) very predictable, as the story states: "Some borrowers are opting to sell homes they can no longer afford."
Unfortunately, folks like the accountant from Detroit are going to find that as this occurs, there won't be enough buyers, as many people will need to sell.
The inevitable scenario: "Some California brokers say they are beginning to see a return of 'short sales' -- transactions in which the sales price isn't large enough to cover outstanding loans."
Soon, this term will be replaced by "jingle mail" This is when the borrower mails the house keys back to the lender and walks away from the mortgage & house....
Comments