A recent research piece by Bank of America estimates that approximately $500 billion of adjustable rate mortgages are scheduled to reset skyward in 2007 by an average of over 200 basis points. 2008 holds even more surprises with nearly $700 billion ARMS subject to reset, nearly ¾ of which are subprimes.
It
was not supposed to be this way. 1% teasers or 3% 2/28’s were supposed to be rolled with no points into something resembling… well…1% teasers & 3% 2/28’s. Instead today we have nearly 7% fixed rate mortgages & not a teaser to be found. Congress, regulators, even Fed officials are stepping in & warning mortgage originators (even mortgage buyers!) that they’d better be careful & only make good loans. Those nasty capitalists! They must have gotten carried away a few years ago. Somehow all those BMWs in the New Century parking lot in Irvine, California didn’t attract much notice in 2006. Now, well, there’s nary a Prius to be found there, but lots of outraged politicians in Washington, that’s for sure. The right places to look for contagion are therefore not in the white-washed Bear Stearns hedge funds, but in the subprime resets to come & the ultimate effect they will have on the prices of homes – the collateral that’s so critical in this asset-backed, & therefore interest sensitive financed-based economy of 2007 & beyond.
In the near future, delinquencies will lead to defaults & then to lower home prices, then we have problems & the potential for an extended – not a 27-day Paris Hilton sentence.
It
was not supposed to be this way. 1% teasers or 3% 2/28’s were supposed to be rolled with no points into something resembling… well…1% teasers & 3% 2/28’s. Instead today we have nearly 7% fixed rate mortgages & not a teaser to be found. Congress, regulators, even Fed officials are stepping in & warning mortgage originators (even mortgage buyers!) that they’d better be careful & only make good loans. Those nasty capitalists! They must have gotten carried away a few years ago. Somehow all those BMWs in the New Century parking lot in Irvine, California didn’t attract much notice in 2006. Now, well, there’s nary a Prius to be found there, but lots of outraged politicians in Washington, that’s for sure. The right places to look for contagion are therefore not in the white-washed Bear Stearns hedge funds, but in the subprime resets to come & the ultimate effect they will have on the prices of homes – the collateral that’s so critical in this asset-backed, & therefore interest sensitive financed-based economy of 2007 & beyond.In the near future, delinquencies will lead to defaults & then to lower home prices, then we have problems & the potential for an extended – not a 27-day Paris Hilton sentence.
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Source: IIPM Editorial, 2008
An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative
Source: IIPM Editorial, 2008
An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative
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