Wave of option adjustable rate mortgage deafults to come
A second, huge wave of mortgage defaults is set to follow behind the first wave of sub-prime defaults as homeowners start to walk away from Alt-A and Option ARM loans.




Source: Credit Suisse (via Bruce Henderson)

Bruce Henderson's commentary notes:

"What this shows is that the first rate resets for the Subprime loans has mostly passed. So people who were going to default on rate payment shock have largely had their day of doom. If you look at 2009 - 2011, you see that there are 2 more flavors left to sour: Alt-A and Option ARM. These magic bundles of toxic waste are even nastier than subprime.

Alt-A were commonly jumbo loans for your $1 million and up McMansions, frequently purchased with little or no money down using low teaser rate loans. Option ARMs were loans where the borrower could pay less than minimum payment, yes that’s right! Their loans were growing larger month over month."
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The Global Financial Crisis »The Global Financial Crisis
Potential consequences of the financial crisis? »Potential consequences of the financial crisis?
More financial institutions will collapse »More financial institutions will collapse
Financial institutions will suffer further capital losses »Financial institutions will suffer further capital losses
Financial institutions forced to write off bad debts »Financial institutions forced to write off bad debts
Many homeowners will default on mortgage and loans »Many homeowners will default on mortgage and loans
Wave of option adjustable rate mortgage deafults to come
Alt-A mortgages accounted for 23% of US market in 2006 »Alt-A mortgages accounted for 23% of US market in 2006
Big monthly payment increases when Option ARMs reset »Big monthly payment increases when Option ARMs reset
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