I went to your source, but they don't say where their source of data is. I am not saying I am disputing the data, it's similar enough to what else is out there to be believable. There are a few reasons to be less distressed by option arms compared to subprime resets.
Option ARMs tend to have less risky customers than subprime, in fact they are often prime customers. Option ARMs also tend to reset at lower rates and have less strings attached than subprime loans. Finally, rates are low so those resets might actually be good things depending on how things are in the future. I think that rates will likely stay low. In fact, I think this chart is a good part of the reason why the Obama administration is trying to keep rates low, so we don't get another wave of foreclosures.
But, this graph is a good representation of one of the trends I have been pointing to that will help the housing market stabilize in the not too distant future.
Option ARMs tend to have less risky customers than subprime, in fact they are often prime customers.
The greatest source of increasing default rates is now coming from PRIME customers. This is in direct relation to increasing unemployment rate, decreasing balance sheets, decreasing sources of secondary funding, and increasing debt-to-income ratios.
rates are low so those resets might actually be good things depending on how things are in the future.
Rates are not much lower, now, than where they were during the rest of this disinflationary decade.
this chart is a good part of the reason why the Obama administration is trying to keep rates low, so we don't get another wave of foreclosures.
As I mentioned above, there is already a building tide of prime defaults, so while lower rates are far better than moderately higher rates, they are not a panacea in a D-leveraging world economy.
Sure, default rates are increasing for PRIME customers due to increasing unemployment, but subprime rate changes often go from something like 3% or even lower to 12% or even higher. I mean, tons of these subprime loans had insane terms, balloon mortgages, horrible extra fees, I know that Prime customers are losing their jobs but many subprime loans were simply never sustainable from the start. You will see, there is no way the default rate for prime loans will match subprime.
Well it appears that only time will convince you, but keep in mind I have done hundreds of interviews with these customers and studied the foreclosure rates for a decade now. Subprime loans were practically designed to fail and that is why they were able to explode when the market was actually doing OKish. I am not saying that foreclosures of prime loans wont go up, but it wont be the decimation that subprime was. In fact, many people are jumping at the opportunity to refinance. I think that was a big part of Obama's effort to bring rates way down. Not just to get people buying again, but because so many ARMs were maturing. We had Bush as prez back in 2006 so basically less than nothing was done to help anybody.
I don't disagree with these points, for the most part, except my larger argument is that the US might not need another subprime-level event to do serious damage, if it turns out that the economy remains weak, or worse, come late this year through 2011.
Also, as hard as they are all trying, mortgage rates aren't coming down the way the Obama and the Fed want them to. Not that they aren't still lower.
Worse yet, have you heard about the vote on bankruptcy cram-downs today? Score one huge victory for the lobbyists and banks. Zero for tax payers and homedebtors.
Option ARMs tend to have less risky customers than subprime, in fact they are often prime customers. Option ARMs also tend to reset at lower rates and have less strings attached than subprime loans. Finally, rates are low so those resets might actually be good things depending on how things are in the future. I think that rates will likely stay low. In fact, I think this chart is a good part of the reason why the Obama administration is trying to keep rates low, so we don't get another wave of foreclosures.
But, this graph is a good representation of one of the trends I have been pointing to that will help the housing market stabilize in the not too distant future.
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Option ARMs tend to have less risky customers than subprime, in fact they are often prime customers.
The greatest source of increasing default rates is now coming from PRIME customers. This is in direct relation to increasing unemployment rate, decreasing balance sheets, decreasing sources of secondary funding, and increasing debt-to-income ratios.
rates are low so those resets might actually be good things depending on how things are in the future.
Rates are not much lower, now, than where they were during the rest of this disinflationary decade.
this chart is a good part of the reason why the Obama administration is trying to keep rates low, so we don't get another wave of foreclosures.
As I mentioned above, there is already a building tide of prime defaults, so while lower rates are far better than moderately higher rates, they are not a panacea in a D-leveraging world economy.
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So did many Alt-As
I know that Prime customers are losing their jobs but many subprime loans were simply never sustainable from the start.
So were many Prime loans, during the bubble years (simply loans which were far too big, in relation to historical and prudent lending practices)
You will see, there is no way the default rate for prime loans will match subprime.
Doesn't have to. The economy was [chugging] along in 2006 when subprime began blowing up. Now the economy is crippled, at best.
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Also, as hard as they are all trying, mortgage rates aren't coming down the way the Obama and the Fed want them to. Not that they aren't still lower.
Worse yet, have you heard about the vote on bankruptcy cram-downs today? Score one huge victory for the lobbyists and banks. Zero for tax payers and homedebtors.
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