I really am not one to give predictions….but I’ve been following the Option ARM news for some time…and it’s darn scary.
If you don’t already know, the Option ARM was a fancy mortgage that allowed borrowers to pick their payment each month. Typically the options were: negative am
I subscribe to Dr. Housing Bubble Blog. Hands down he has the best analysis on the housing market. Tons of data. Lots of charts.
To me, this isn’t “doom and gloom” its just the facts. Look at this from the latest post on options arms:
from Dr. Housing Bubble Blog….
We’ve only started the first round and it is game over. In total approximately $750 billion of option ARMs were originated from 2004 to 2007. What is even more troubling is that 55% of borrowers with option ARMs owe more than their actual home is worth. And this data is conservative since it comes from the banking sector which didn’t even see the recession coming even while they were standing knee deep in it.
Now here is where the data becomes more recent. As of December of 2008, a stunning 28% of option ARMs were delinquent or in some stage of foreclosure. We haven’t even seen the major recasts and already over 1 in 4 of these loans is imploding. Can you say subprime redux?
This is just crazy. You should read the post for yourself, but it looks like we are in for another HUGE way of home foreclosures in the coming 2 years.
{ 3 comments… read them below or add one }
RE: Small Business, The Housing Market, Foreclosures, and Job Loss:
Many fail to realize that there are millions of self-employed smaller businesses that are holding these “toxic” mortgages that are going to reset in 2009 through 2012. These borrowers are Prime and Near-Prime borrowers who hold ALT-A, Option ARMs, Interest-Only mortgages. There are $1 Trillion ALT-As, and $500-600 Billion Option ARMs.
Not only will these small business owners lose their homes, but there will be the resulting JOB LOSSES on their business failure. Although President Obama is stressing the need to create 3 million new jobs, we must understand that “JOB RETENTION IS AS IMPORTANT AS JOB CREATION”.
I authored a survey which was conducted by the National Association for the Self-Employed (NASE) to its national membership. The NASE survey is at http://advocacy.nase.org/research.asp
See the NASE News for the Survey on Toxic Mortgages. Please read my Commentary.
That is a very good point, Prof Bornstein. No one has really brought up the fact that the housing crisis is continuing to worsen. The media admits it's bad, but as you pointed, it looks like its about to get A LOT worse! For the self employed, it is still their responsibility to know whether they can afford a house or not. And it was also their choice to sign the Option ARMS and Interest-Only mortgages. Especially being a business owner, they should have ran the numbers on their personal finances to see whether they could afford it or not.
Losing a job is different from losing your home. With a job, as an employee, you have very little, if no control whatsoever. As a home owner, you should know the consequences if you cannot afford the payment. I understand that homeowners need help, but if the government gives money to poor money managers, they should also give money to good money managers. Someone who has bought a house they could afford and has not defaulted on their mortgage should be rewarded just as much.
I'm like you, I can't believe how bad things are getting but it's reality and facts, not fear mongering. Those home owners are due to default. There is one potential silver lining: The $15,000 credit which might push qualified buyers into the market. God, I hope so.