Worse than subprime?

[LargoWinch]

Surely the stock market is discounting all of this? Or perhaps counting on the Central Banks' "put"?

... The bulk of outstanding option ARMs — a product no longer available to homebuyers — were issued between 2004 and 2007. Monthly payments on these mortgages are due to reset to a higher lending rate between 2009 and 2012...

Full article dated June 18, 2009 here.

[Kadriana]

Re: Worse than subprime?

Scary. Slightly OT but when they calculate housing inventories, are For Sale By Owner homes included in that calculation? I don't know about other parts of the country but around here, 70%+ of houses you see for sale are by owners.

[don]

Re: Worse than subprime?

This is old news here on iTulip. The Credit Suisse charts told the story. What they didn't show was that the sub-prime loans, now having run their course, blew the frothiest fictitious equity off the top of the housing pie. The Alt-As, pick-a-payment and defaulting 30-year fixed (due to employment and debt stress) will dig deep into the pie plate itself.

[karim0028]

Re: Worse than subprime?

This is old news here on iTulip. The Credit Suisse charts told the story. What they didn't show was that the sub-prime loans, now having run their course, blew the frothiest fictitious equity off the top of the housing pie. The Alt-As, pick-a-payment and defaulting 30-year fixed (due to employment and debt stress) will dig deep into the pie plate itself.

You know its going to get worse when 100K+ folks (prime borrowers) begin contemplating/actually walking away....

Thats the latest discussions in the office and with friends.

[cjppjc]

Re: Worse than subprime?

You know its going to get worse when 100K+ folks (prime borrowers) begin contemplating/actually walking away....

Thats the latest discussions in the office and with friends.

Why would they walk? No equity or can't afford. If no equity, give me a break.

[metalman]

Re: Worse than subprime?

This is old news here on iTulip. The Credit Suisse charts told the story. What they didn't show was that the sub-prime loans, now having run their course, blew the frothiest fictitious equity off the top of the housing pie. The Alt-As, pick-a-payment and defaulting 30-year fixed (due to employment and debt stress) will dig deep into the pie plate itself.

previously covered exhaustively...

google site:itulip.com credit suisse option arm

[swgprop]

Re: Worse than subprime?

Why would they walk? No equity or can't afford. If no equity, give me a break.

Care to elucidate?

[cjppjc]

Re: Worse than subprime?

Care to elucidate?

If they can't afford the mortgage, I can understand. If they just don't like the idea that they bought a house and it's now worth less. Please. Did you think I meant anything else?


Btw: The first time I typed worth less I forgot the space: worthless.

[swgprop]

Re: Worse than subprime?

If they just don't like the idea that they bought a house and it's now worth less. Please. Did you think I meant anything else?

I'm sure there is an extensive collection of folks that indeed don't like the fact that their home is worth less than what they paid for it. That data point by itself won't induce them to walk.

What may induce them however is a broader analysis of their predicament and available options. If your monthly housing expense is say $3000 per month including mortgage, property taxes, insurance, etc. and you can reduce it to $1200 per month by renting the identical house across the street would you not consider it?

The downside is a credit smackdown. Beyond that, what? The shame of foreclosure? Welcome to a new affinity group, growing by leaps and bounds. Failure to meet your moral obligations? Please, to whom - is anyone involved with the origination of your mortgage still involved with it - or even still in existence?

I would submit that for a lot of folks the walkaway option is viable. And I would recommend it in a heartbeat over draining one's 401K to bring cash to closing if they had to sell.

[cjppjc]

Re: Worse than subprime?

I'm sure there is an extensive collection of folks that indeed don't like the fact that their home is worth less than what they paid for it. That data point by itself won't induce them to walk.

What may induce them however is a broader analysis of their predicament and available options. If your monthly housing expense is say $3000 per month including mortgage, property taxes, insurance, etc. and you can reduce it to $1200 per month by renting the identical house across the street would you not consider it?

The downside is a credit smackdown. Beyond that, what? The shame of foreclosure? Welcome to a new affinity group, growing by leaps and bounds. Failure to meet your moral obligations? Please, to whom - is anyone involved with the origination of your mortgage still involved with it - or even still in existence?

I would submit that for a lot of folks the walkaway option is viable. And I would recommend it in a heartbeat over draining one's 401K to bring cash to closing if they had to sell.

My original comment was based on what karim0028 wrote. After rereading it I'm not sure if those conversations were about themselves, or others. Banks will go for the short sales. There isn't any need to tap other assets.

[karim0028]

Re: Worse than subprime?

My original comment was based on what karim0028 wrote. After rereading it I'm not sure if those conversations were about themselves, or others. Banks will go for the short sales. There isn't any need to tap other assets.

No, im talking specifically in Cali and AZ, people making 100-200K (combined) they can afford it and they will walk when its non recourse (100K underwater or more) and they can rent for 1/2 the price. Im already seeing it happen with colleagues and its being openly discussed... They will stay rent free for a year and then go rent afterwards... Shortsale is not much better on your credit than a foreclosure. Hell even if the debt is recourse for the most part you would be better to settle if they come after you as long as you have cash you will be fine for the most part...

As for the shame of foreclosure, please...... If you have income and put a good chunk down payment you can buy half price in a couple of years...

It becomes a business decision at that point.....

[cjppjc]

Re: Worse than subprime?

Ugh........

[karim0028]

Re: Worse than subprime?

Ugh........

Keep in mind im not advocating it; im simply telling you what IS going to happen.... You talk about the option arms and im just telling it as i see it from within the folks in the income bracket i mentioned... Which will only add to the glut of properties coming on the market.

[Munger]

Re: Worse than subprime?

My original comment was based on what karim0028 wrote. After rereading it I'm not sure if those conversations were about themselves, or others. Banks will go for the short sales. There isn't any need to tap other assets.

There was a CNBC video posted here a bit ago where a man told his tale: he put down $300,000 on a $700,000 house in CA in 2006. So at the time he had a $400,000 non-recourse mortgage. The house is now worth about $300,000. Thus he has -$100,000 invested in this house. If he walks he is back to zero.

Is it irrational to walk away from -$100,000?

[swgprop]

Re: Worse than subprime?

Banks will go for the short sales. There isn't any need to tap other assets.

Servicers require information before approving a short sale. That information often includes:

Bank Statements
Pay Stubs
Tax Returns
Hardship Letter

Under Karim's posted scenario a short sale would in most cases NOT be approved due to lack of hardship. The lender/servicer would expect payments to continue or other assets tapped to make up the shortfall.