AFSCME 3357-HOF'S BLOG

"Mr. Mortgage" and Rounds 2 and 3 of the Mortgage Crisis

I really don't know who Mr. Mortgage is, but he's somehow related to the Implode-o-meter website, a website that has been ahead of the curve on the mortgage mess for about 2 years now, and he sure writes a lot (and videopodcasts).

Here he throws some numbers around from Fitch suggesting the industry is due for a second round of mortgage defaults. The first round was largely due to subprime loans going bad. The second round will relate to Option ARM mortgages. (Option ARM loans, sometimes called "pick a payment" loans typically negatively amortize until the loans hit a negative amortization cap, then the loans recast to a payment high enought to pay off the loan on the original schedule. Mr. Mortgage says that the average pay-option buyer will face a mortgage payment INCREASE of $1,053 per month at recast. That's more than my entire mortgage payment. Wachovia Corp. has $122 billion invested in pay option mortgages. If they are already looking at 10%-24% default rate even before these loans hit their recast date, it doesn't take a genius to forcast default rates will double after the payments go up a grand a month.

Note the scope of the problem, Wachovia alone has over $100 billion in crappy ARM loans; and no doubt the taxpayers in some form will be asked to subsidize this bank's awful decisionmaking to the tune of 10s of billions of dollars. I find it hard to draw a moral distinction between bailing out their crappy loans and providing support to automakers (bad decisions & all), especially since the automakers drive the economies of the communities where they have located facilities.

By the way, Mr. Mortgage says ROUND 3 of the Mortgage crises will come from a(prime) jumbo loan implosion about 6 months after the option ARM mess peaks in a year or so. McCain & Obama, are you sure you want to be President?