Letters to the Editor
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Resets are not the problem
There is growing evidence that interest rates aren't the problem anyway.
For example:
http://globaleconomicanalysis.blogspot.com/2008/03/wamu-alt-pool-revisited.html
Shows the current status of one Alt-A (so not even the worst) pool that is extremely young. The numbers are frightening and although this is probably a worst case example, if typical pools are even in the same ballpark things are going to get very bad.
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Disappearing Federal Reserve Deposits !
Andrew , any comments ? ? ?
The exact numbers from the Fed:
Actual non-borrowed reserves: -61,788 billion
Required non-borrowed reserves: +39,856 billion
The shortfall is now over $100 billion.
http://theautomaticearth.blogspot.com/2008/03/debt-rattle-march-28-2008-where-was.html
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Mortgage Rates are going up
This scarcely reported fact is pretty scary. The Fed is pushing on a string, by driving down rates at the short end of the curve, while inflationary concerns drive up the long end.
Anecdotally there is evidence that homeowners who want to move their property are willing to carry the paper at lower rates. Since very few mortgages are carried full term, this makes a lot of sense. Assuming Bernanke wants to see lower mortgage rates, and as a banker we should view this with scepticism. Bankers make money borrowing at the short end, and lending at the long end.
Should falling rates begin a spiral, as the market sets rates, and not the bankers, we could be heading for zero, or even negative rates.
Suppose you are in a mortgage which is going to reset at 8 1/2, and your neighbor has the same identical house, and he wants to move, and will carry the paper at 5 1/2. You will figure out a way to do it.
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We would expect rates to go up
that's the nature of accounting for past default risk. Not a huge amount but some.
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Reset are NOT the problem
The problem is not the resets--they still account for a tiny percent of the foreclosures, which are still small overall--but the FEAR in the marketplace on the part of lenders. That fear is caused by a number of factors: government investors retreating from risk, mortgage insurance companies on the verge of insolvency (why aren't you talking about that, BTW??), overexposure in declining markets and, oh, yeah, the FEAR of the Great Reset Explosion of 2008, whenever that comes.
Declining values, caused by banks unwilling to lend because of declining values, are causing this catch-22 cycle of death.
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Of recessions and interest rates
1) According to the most recent figures on growth (0.6% 4th quarter GDP), we are not currently in a recession. We are certainly in a period of slow growth that may feel recessionary, and we may yet experience one in 2008, but can we please keep our terms straight? Stop the fear-mongering.
2) Anybody who takes out a mortgage at 2% and believes it won't reset higher is someone I'd like to speak to about my tropical beachfront property in Alaska. Unfortunately, there were lots of greedy and/or naive people who bought more house than they could afford in the past few years. Thus, it only stands to reason that many of them will ultimately lose it. I don't know why this is everyone else's problem. More than 99% of U.S. homes are not in foreclosure.
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Teaser Rates
Sure, a lot of mortgages had initial rates below 2%, but I haven't read about many of those that lasted for 2 years, neg-am loans excepted. Mostly, I've read and heard about sub-2% for 3-6 months. Was 2+years of sub-2% actually common?
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Its not "just" the reset
Greetings
The home owner is "upside down" on the mortgage with 'negative amortization' paying only the minimum because of a shitload of plastic debt plus food/fuel issues growing by the second
Its not the reset so much as the big balloon as these come to term
Do the "teaser terms" include the minimum negative amortization payments or do those interest only payments last the term of the contract?
When those minimum payments run out, then the merry go round grinds to a halt...
Enjoy the journey
WarLord
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"New Deal' Democrat?
More like a Neo-Democrat, or 'near-Democrat.' The statistics for GNP/GDP are not accurate, as they don't take non-market activity into account, and treat all 'buying' as equal. That is why the GPI/HDI were developed, a progressive approach that accounts for ALL economic activity, even if it is not monetarized. Again, what is a 'new deal' democrat doing with a Republican figure?
I wonder if FDR would have blamed people in the 30s for their mortgage problems? Maybe not.
There were speculators, and gullible people, but there was also a mortgage and banking industry that pushed a bogus product. Takes two to tango. Poor and working class people sometimes do not have the education it takes to see through cons. Or they want to believe, when the 'powers that be' tell them something is all right. And middle class people are so greedy, they will buy, buy, buy, gullible for a different reason.
None of this would have happened if the product had not been delivered. You sound more like Ayn Rand than FDR, so I'd suggest you change your moniker.
Of course, I am not a dog either.
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Not so easy
I've been hearing the words "credit crunch" a lot lately in regard to what the Fed is trying to fix. From a corporate point of view, a "credit crunch" is when there isn't enough money to lend available.
But on the level of the individual borrower, a "credit crunch" is when lenders -- credit cards, mortgages, auto insurance -- buckle down on borrowers when the economy starts to turn downward.
So, those ARMs might not go up so much, but they're going up at a time when every other kind of borrowing is getting more expensive as well.
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ELYDOG
Contrary to many popular myths, the New Deal was not about absolving people of all personal responsibility - in this case bailing out people for making poor financial decisions.
The genuine crises of the 1930s - bank failures and 30% unemployment - are hardly fixtures of our times. That's not to say we don't have our economic challenges, but they're not equivalent to, or nearly as dire as, the ones faced in FDR's era.
I think Roosevelt would be horrified to see how ignorant, trashy, and short-sighted American culture has become - to the point that we claim we "can't save," or even exercise basic fiscal restraint, but yet somehow always find money for a new SUV, cell phone, and cable TV. Oh, and the house we can't afford - well just charge it!
Poverty is not going to be cured by encouraging people to be profligate. The current mess will only repeat itself if we provide people an incentive to take on unreasonable risk - because they know the taxpayers will pick up the tab. Where does the buck stop?
For the record, I support stronger regulation for the mortgage industry. However, one problem with the working class that you claim to speak for is that they are as responsible as anyone for the current financial predicament, and the era of deregulation in general. Many, if not most, of them have voted Republican for 30 years. "What's the Matter with Kansas?" indeed.