New Wave of Alt-A Foreclosures to be Worse than Subprime Wave

[Retire Soon]

Just when it seemed that the onslaught of subprime loans was about ready to peak, there is a second wave that will dwarf the first by a large margin. The second wave will consist of Alternative-A loans, mortgages made to people with good credit, but without proof of income.

Why is the second wave so far behind the first? The answer is very simple, Alt-A loans have a 5 to 7 year grace period before before payments to principal is required. Subprime borrowers, however, had to begin paying money to principal after only 2 or 3 years. This is why there will be such a large lag time between the two devastating waves.

With the lethal combination of unemployment at a four-year high, banks having tighter standards for home loans and borrowers with negative equity in their homes, we will experience a much larger number of foreclosures in the second wave than what we did in the first.

When thousands of borrowers with good credit see their mortgages double in coming months coupled with mortgages exceeding the value of their homes, we should not be surprised when they stop making payments. Just when we thought subprime borrowers with bad credit had taken the economy for a wild ride, we better further tighten our seat belts for for a far scarier ride with Alt-A borrowers who had good credit. It's not going to be pretty.

http://www.nytimes.com/2008/08/04/business/04lend.html?_r=1&ref=todayspaper&oref=slogin

 

[FinanceDude]

I think MOST folks with good credit have fixed mortgages, but then again I have no numbers to back that up............

 

[ziggy29]

More depression-mongering from the mainstream media. How lovely.

 

[Notmuchlonger]

More depression-mongering from the mainstream media. How lovely.

They need to feed their kids..

 

[eridanus]

Dynamic Maps of Nonprime Mortgage Conditions in the United States

California looks pretty grim, as does Florida.

 

[barbarus]

More depression-mongering from the mainstream media. How lovely.

Exactly.

If everybody just shut up about this nonsense, it would go away!

 

[Notmuchlonger]

Exactly.

If everybody just shut up about this nonsense, it would go away!

Eventually it will

 

[Helen]

Eventually it will

I hope so, I've had my house on the market since the end of May... No offers yet.

 

[FIRE'd@51]

I believe housing prices peaked in late 2005 or early 2006. These Alt-A loans won't be resetting until late 2010 until early 2013, if they have 5 to 7 years until reset, so there's still quite a bit of time left for the housing market to recover before they reset. The ones that are resetting in the next couple of years would have been taken out in the 2002-2004 period. Those homes likely benefited from the large price increases of 2003, 2004, and 2005, so I would think those folks would still have a good bit of equity left in their homes, and could refinance.

 

[Notmuchlonger]

I hope so, I've had my house on the market since the end of May... No offers yet.

The world goes on. One way or another.

 

[Bestwifeever]

Also if the fed would whisper something about the possibility of interest rates (and hence traditional mortgage rates) going up, I am sure a ton of buyers who have been waiting for the bottom of those rates would start getting serious. Just my opinion.

 

[Tadpole]

Graphic of the timing of the US resets

IMFresets.jpg (image)

 

[ziggy29]

Also if the fed would whisper something about the possibility of interest rates (and hence traditional mortgage rates) going up, I am sure a ton of buyers who have been waiting for the bottom of those rates would start getting serious. Just my opinion.

The Fed really can't control long term interest rates. In fact, as the Fed was dropping rates for the last year, mortgage rates were rising.

 

[dlhanson]

I hope so, I've had my house on the market since the end of May... No offers yet.

Apparently, you priced the house too high.

 

[JustCurious]

Apparently, you priced the house too high.

You're right. Any house will sell in any market if it is priced right.

 

[Tempesta]

media needs big splashy story

 

[ladelfina]

tempesta, I would not get snarky/angry over something you obviously do not understand.

The Big Picture | Second, Larger Wave of Mortgage Defaults Coming

http://globaleconomicanalysis.blogspot.com/2008/04/wa-mu-alt-pool-deteriorates-further.html

January Pool Stats

19.3% 60 day delinquent or worse
13.15% Foreclosure
1.83% REO
February Pool Stats
22.69% 60 day delinquent or worse
11.62% Foreclosure
3.56% REO
March Pool Stats
25.3% 60 day delinquent or worse
13.35% Foreclosure
4.44% REO
Note the above progression. This cesspool from May of 2007, was 92.6% originally rated AAA, even though loans had full doc only 11% of the time. In less than one year, the pool was 25.3% 60-day delinquent or worse. Of that 25.3%, 13.35% is in foreclosure and 4.44% is bank owned real estate.

http://calculatedrisk.blogspot.com/2007/07/alt-the-new-home-of-subprime.html

=[July '07] At the same time Alt-A volume is creeping up, its credit quality shows some signs of deteriorating.

 

[honobob]

Apparently, you priced the house too high.

The house has barely been on the market 60 days. There is a normal marketing time. Different for different types, prices and locations. Three to 6 months is not a bad time frame for most properties.

 

[honobob]

media needs big splashy story

All the sheep eat it up! They demand more! Feed the sheep. Fleece the sheep! Sheep don't know sh*t.

No sheep were injured in this post. This is not to demean sheep only those that act like sheep. You know who ewe are.

 

[jclarksnakes]

Every cloud has a silver lining. One result of this problem (if it really is a problem) is that home prices will continue to be depressed for several more years. I see a water front Mcmansion in my future.

 

[Tempesta]

No I do understand the problem, but it's just part of the current problem. there's no second, third waves, blah, blah, blah, it's just one big messy problem. Now the sooner media stops the fear-mongering, the better for the public perception. Because I do believe there's tons of money on the side from the first time buyers that could help with this housing mess. Those new buyers are holding out simply because of this type of media coverage. Again there's no second wave, it's just part of the current problem

tempesta, I would not get snarky/angry over something you obviously do not understand.

The Big Picture | Second, Larger Wave of Mortgage Defaults Coming

Mish's Global Economic Trend Analysis: WaMu Alt-A Pool Deteriorates Further


Calculated Risk: Alt-A: The New Home of Subprime?

 

[Helen]

Apparently, you priced the house too high.

Actually no one has complained about the price, the main problem seems to be the two bedrooms. People want at least three.

Someone is going to want it, the house is on three acres with a beautiful trout stream in the back. I just need to find a trout fisherman with no kids.

 

[CitricAcid]

The Fed really can't control long term interest rates. In fact, as the Fed was dropping rates for the last year, mortgage rates were rising.

This is true, but I feel most of the raising of rates was the massive deleveraging that occurred due to the realization of the ACTUAL risk that these mortgage issuers were exposed to. The mortgage rates became much more in line with the actual risk. Are the rates and lending practices back in line with traditional (borrow from CD at 4-5%, from checking at about 1% and mortgage at 6%) banking practices, or is there too much negative equity to have the rates have the risk priced in? It is tough to tell, but the Fed was trying to dampen the downfall with the rate decreases. Perhaps, rates would have increased to 7% without the rate cuts. It is difficult to say how much effect the Fed had, and if it was a solid choice, but I feel most of the increase in rates was the risk being realized by the lenders, and that the Fed would have slightly more control over interest rates now. That is, raising rates I believe would raise rates, if slightly.

No I do understand the problem, but it's just part of the current problem. there's no second, third waves, blah, blah, blah, it's just one big messy problem. Now the sooner media stops the fear-mongering, the better for the public perception. Because I do believe there's tons of money on the side from the first time buyers that could help with this housing mess. Those new buyers are holding out simply because of this type of media coverage. Again there's no second wave, it's just part of the current problem

Give me a couple years

 

[Marquette]

Actually no one has complained about the price, the main problem seems to be the two bedrooms. People want at least three.

Someone is going to want it, the house is on three acres with a beautiful trout stream in the back. I just need to find a trout fisherman with no kids.

Where's your house?

 

[Tempesta]

Actually no one has complained about the price, the main problem seems to be the two bedrooms. People want at least three.

Someone is going to want it, the house is on three acres with a beautiful trout stream in the back. I just need to find a trout fisherman with no kids.

I know a fisherman with no kids looking for a house....but he only fish salmon