The Mortgage Crisis, Phase II.....

[marmar]

from Bloomberg:



Alt-A Mortgages Next Risk for Housing Market as Defaults Surge

By Dan Levy and Bob Ivry

Sept. 12 (Bloomberg) -- For Dean Nessen, the choice of a mortgage was easy. By agreeing to pay only interest for three years, the self-employed salesman didn't have to show proof of income and landed a rate of 6.25 percent.

Now, four years later, Nessen's industrial coatings business has gone belly up and his rate has jumped to 10.6 percent. He can't afford the payments and may have to move his family out of their home in Commerce Township, Michigan.

Homeowners lured by low introductory rates to Alt-A mortgages, which typically require little or no proof of a borrower's income, may fuel the next wave of foreclosures and further delay a recovery from the worst housing decline since the 1930s. Almost 16 percent of securitized Alt-A loans issued since January 2006 are at least 60 days late, data compiled by Bloomberg show. Defaults will accelerate next year and continue through 2011 as these loans hit their three- and five-year reset periods, according to RealtyTrac Inc., an Irvine, California-based foreclosure data provider.

``Alt-A will be another headache,'' said T.J. Lim, the London-based global co-head of markets at Unicredit Group. ``I would be very worried about anything issued in the last half of 2006 and the first half of 2007.''

About 3 million U.S. borrowers have Alt-A mortgages totaling $1 trillion, compared with $855 billion of subprime loans outstanding, according to Inside Mortgage Finance, a trade publication in Bethesda, Maryland. Of the Alt-A borrowers, 70 percent may have exaggerated their income, said David Olson, president of mortgage research firm Wholesale Access in Columbia, Maryland. .......(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601109&sid=arb3xM3SHBVk&refer=home

[annabanana]

1. How were "Alt-A" mortgages even LEGAL?

Three years of paying nothing but interest (which you basically do ANYWAY) in exchange for pretending to have an income?

Anyone involved with the structuring or approving this absurd set-up should be jailed. I have no knowledge or understanding of matters financial beyond my own checkbook & kitchen table economics and it is plain as day that it's ridiculous...

[glowing]

8. These type of mortgages are good if you are turning over homes..

If you like to buy older homes, fix them up, and turn around and sell them for a higher profit... Its not a loan that should be structured for someone who intends to stay in the home for more than 3yrs... Its the type of mortgages that people would scoop up homes (speculators) only to turn around and sell at a much higher rate... Half the reason the home bubble became so unstable and insane was because of the speculation and the flipping of homes.

[MadHound]

2. Great, more stupidity that we're going to have to pay for

I'm sorry, but if you say yes to nothing down, interest only ARM like this, you're downright stupid and pretty much deserve whatever grief you're getting now. What burns me is that the millions of people around the country who did the right thing, took out a fixed rate, traditional mortgage, didn't get in over our head are now going to have to pay even more to bail both the idiots who took out these mortgages and the greedheads who pushed them on to everybody.

Frankly my thought is let them all fail, the mortgage companies, the investment banks, Fanny, Freddy, whoever. It might teach them a lesson. I'm tired of this crony corrupt capitalism where certain segments of society or certain corporations are deemed to big to fail, thus we're socializing the risks and privatizing the profits. If we're a capitalist country, let the magic of the market do it's work and get rid of the dead wood.

[Name removed]

3. Deleted message

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[annabanana]

4. I look forward to STRICT regulations on the "kinds" of

mortgages that can be offered. "no income, no credit, no problem" crap should engender jail-time.

[marmar]

5. Oh lord......Enjoying your morning out at DU?

YES, the mortgage companies were forced to inflict usurious mortgages on lower-income borrowers. They didn't see this as a vulture capitalism opportunity at all. WOE WOE is them.

I'll give you this, at least this post was better than your first attempt at "balance." Hi and bye! Enjoy your visit to the high-intellect community.

[annabanana]

6. How, exactly, are companies

"forced" to give loans?

[Gin]

7. I predict...they will find a buyer who will purchase the good profitable assets...

and the risky assets will be taken over by the government...or.."WE" the tax payers...once the loans go belly up.

Privatizing the profits and socializing the risk is the rule of the game.

[El Pinko]

10. Democrats share some blame for this, after all, Clinton deregulated lending...

...but Clinton was a democrat in name only (like an awful lot of elected dems these days). They have all taken up the GOP mantra of "small government" and "deregulation", and this is a part of that.

This has very little to do with stopping racist policies like redlining (redlining is NOT about denying people credit because they are not creditworthy, it's about denying them credit because they live in a neighborhood where the majority are the wrong COLOR.)

It's too bad that partisanship has blinded you (of course it has blinded some democrats too) because some of what you say has some validity.

But the mortgage mess is as bipartisan as it gets (even though it is pretty much an example of Reaganomics in a nutshell).

[salin]

11. I agree with point two - and partially with point one but your claim perplexes me

point two - agreed - but not just about houses .... buying on credit in general. My late depression era, liberal economist father taught us well - and none of my generation has fallen trap to the want it now consumerism. This is a societal issue not a political issue.

point one - I agree that the problem is complex. However the whole "forced to loan money" thing is absurd. Some states were trying to crack down on predatory lending practices in low income areas throughout the 2004+ but were blocked at the federal (executive branch not legislative branch) level. I remember a big problem in Ohio - in response to particularly aggregious mortgage practices in poor neighborhoods in Cleveland. But the efforts were blocked based on the argument that federal guidelines (much less stringent) should override local/state lending guidelines because it would be two cumbersome for the corporations to keep up with varying standards/regs. How exactly is that a democratic congress problem of "forcing" companies to make these loans? Was the democratic congress also forcing brokers at Country Wide to fake earnings of lendees or to falsify documents attesting to the values of homes? How did those clever and devious democratic congressmen and women sneaking into mortgage brokers offices and forcing such practices? Sorry, but your attribution of blame is patently ridiculous. The only case where it might be true is in so called "free enterprise zones" (a bush1 policy, continued under Clinton and Bush2) and that was about incentives for investing in very limited and specified areas not about forcing loans to be made - and the areas are far too limited and few to be the cause of the financial meltdown we are witnessing.

I do agree, however, that the meltdown is more damaging than Enron. However, there is a great parallel - in Enron, we the public who were paying attention, learned about all sorts of exotic accounting methods and gimmicks to hide debt and how difficult it is for investors to get good information about businesses per making investment decisions. One would have thought that there would have been regulatory fixes (and initially there was attention per Sarbanes (sp?)-Oxley - but that was quickly watered down). Instead we now learn that on the financial institutions both private and public/private ala Fannie and Freddie - the era of dangerous exotic accounting and hiding debt and foolhardy business decisions based on the faked up accounting of asset vs debt - has only accelerated in the post Enron era.

[El Pinko]

9. To clarify the impact of Alt-A in visual terms, for those who think things are bottoming out soon...

...This mess has only just begun.