What a day today eh? I wanted to talk about another shoe thats about to drop in the housing market. I can't even see the floor of the housing market anymore because its filled with so many shoes!
The 5 year ARMs are next folks. They loom out there in the horizon like a tornado, slowly spinning their way towards us and getting ready to reset.
Interest Rates are up and Home Prices are down
This is a bad combination when your 5 year ARM is about to reset as interest rates are surging. Many of these 5 year arms were done with interest rates of around 4-1/2%. Rates now are around 6.5% or higher if your credit sucks.
This huge increase in payments will simplybe too much for many homebuyers who probably couldn't afford their house in the first place!
Expect several more waves of foreclosures over the next few years. As you can see above, we have another $300 billion of ARM mortgages that are about to reset over the next two years. This comes at a time when the banks are up to their eyeballs in debt and have no ability to raise capital.
IMO, this will be the straw that breaks the camels back for many banks.
Bottom Line:
We all heard what the IMF said today:
"WASHINGTON (MarketWatch) -- Top experts at the International Monetary Fund said Monday that there is no end in sight for the turmoil that had gripped financial markets for the past year."Global financial markets remain fragile and indicators of systemic risks remain elevated," said Jaime Caruna, the IMF's point man of the crisis at a press conference.
The U.S. housing market remains the key source of the turmoil. And there are still no signs of an end to the downturn."At the moment...with delinquencies and foreclosures rising sharply and house prices continuing to fall, a bottom for the housing market is not yet visible," Caruna said."
This mess just seems to keep growing like a cancer. Just when you think its over, we find another shoe. I think we could finally see the VIX start to rise followed by a big drop in stocks. I expect another strong wave of selling.
The government seems to be doing everything they can to make this collapse worse then it has to be. The bailouts seem to never end, and the SEC's decision to intervene into the markets has totally blown up in their face.
The economy looks to be in a death spiral. The Feds need to realize that there is no bailout on this earth that can stop a bubble from bursting!
All they can do now is wait for the carnage to subside and try to pick up the pieces.
I guess its time to sit and watch Rome burn.
5 comments:
No doubt, America has a Footware Problem (aka the other dropping shoe) and a Poultry Problem (chickens coming home to roost).
But Jeff, grab that vodka bottle because I have a doozy post for you...here's a headline and snippets from Naked Capitalism (I'll post full story/link in the forum).
Enjoy !!
Servicers to Ask for Access to Discount Window?
NAKED CAPITALISM July 28, 2008
HousingWire says that mortgage servicers may too come knocking on the Fed's window for financial support, thanks to the housing bill just passed by Congress.
Hope Now Alliance mortgage counsellors report that servicers are hemmorhhaging cash, prime worse than subprime. Why? In default, servicers are required to advance the first 90 days of interest payments to the trust. Some agreements also require them to pay principal during that period. Even after the 90 days, the servicer has to continue to pay real estate taxes and insurance.
The new Housing bill will not go into effect until October 1, and ... Barney Frank (D-MA) warned servicers that they needed to halt foreclosure activity ...until the new laws became effective...But the delay could be much [longer]...HUD officials are saying the housing bill wouldn’t likely be effective until the middle of 2009.
Wow Avl
It never seems to end does it. Can I get Access to that discount window??
They can't throw enough money at this bubble can they? The stupidity is beyond belief
I have an old beat-up sofa the dog loves to lay on, to lug over to the fed discounts window an exchange for some T-Bills.
snicker.
But seriously, those loan servicers may be in triple-binds and could become an anchor that pulls the mortgage crisis down a few more ledges on its plunge.
I'm presuming that today's insane market activity is driven by temporarily falling oil prices while "hands over ears" about all the other bad, bad stuff.
I'm in bonds, baby, yeah!
Minton
Today everyone buried their head in the sand. Its better than facing reality!
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