Friday, July 11, 2008

Resets on ARMs Will Now Decline Through 2008

The chart above from the Dallas Fed shows scheduled mortage re-sets through the end of 2008, and indicates that mortgage resets peaked in June 2008 at about $55 billion, and will be down close to $30 billion by yearend. In other words, the worst of the subprime problems might now be behind us.


At 7/11/2008 7:59 PM, Blogger Aaron Santos said...

You're being a bit disingenuous with that chart. While 2008 sub-prime resets will be mostly over by 2009, Alt-As and OARs are set to reset through 2010 and 2011. Granted, the default rates of these are considerably less than those of sub-primes, we aren't nearly out of this. The CSXR still has a long way to fall before it reaches pre-bubble levels.

At 7/11/2008 9:42 PM, Anonymous Anonymous said...

Just checking

Still the little optimist.

At 7/11/2008 9:58 PM, Blogger bobble said...

with short term interest rates low, resets are no longer the problem.

the problem is that, as home prices continue to decline, an ever increasing number of people owe more on their homes than the home is worth. since most mortgages are non-recourse loans, these people are walking away from their mortgages.

At 7/11/2008 10:27 PM, Blogger Aaron Santos said...

If the Fed raises interest rates in the next 18 months to curb inflation, the resets could be probematic.

At 7/12/2008 10:45 AM, Anonymous Anonymous said...

In the face of the third largest banking failure in U.S. history some people still think it's business as usual. It isn't.

On July 11, 2008, IndyMac Bank, F.S.B., Pasadena, CA was closed by the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC) was named Conservator.

But don't worry, American household net worth is $56 trillion dollars so it will all be good.

At 7/12/2008 1:13 PM, Anonymous Anonymous said...

Anonymous - banks fail all the what, right now failures are historically LOW!

At 7/12/2008 5:33 PM, Anonymous Anonymous said...

It's the momentum, Kevin, the momentum.

2008 has already eclipsed 2007 for FDIC failed banks.

IndyMac will cost about 10%-15% of the FDIC reserves of $53 billion. You better pray that a big kahuna doesn't wipe out the reserves.

At 7/13/2008 5:52 AM, Blogger juandos said...

"the problem is that, as home prices continue to decline, an ever increasing number of people owe more on their homes than the home is worth"...

Thanks bobble for explaining how really dumb people buy homes...

At 7/13/2008 7:30 AM, Anonymous Anonymous said...

Thanks juandos for explaining that really dumb people bought homes in the face of predatory lending, lax underwriting standards, de minimus regulatory oversight, privatization of gains and socializing of losses and the POTUS's ownership society mandate.

Straight from the Whitehouse:

Expanding Homeownership. The President believes that homeownership is the cornerstone of America's vibrant communities and benefits individual families by building stability and long-term financial security. In June 2002, President Bush issued America's Homeownership Challenge to the real estate and mortgage finance industries to encourage them to join the effort to close the gap that exists between the homeownership rates of minorities and non-minorities. The President also announced the goal of increasing the number of minority homeowners by at least 5.5 million families before the end of the decade. Under his leadership, the overall U.S. homeownership rate in the second quarter of 2004 was at an all time high of 69.2 percent. Minority homeownership set a new record of 51 percent in the second quarter, up 0.2 percentage point from the first quarter and up 2.1 percentage points from a year ago. President Bush's initiative to dismantle the barriers to homeownership includes:
American Dream Downpayment Initiative, which provides down payment assistance to approximately 40,000 low-income families;
Affordable Housing. The President has proposed the Single-Family Affordable Housing Tax Credit, which would increase the supply of affordable homes;
Helping Families Help Themselves. The President has proposed increasing support for the Self-Help Homeownership Opportunities Program; and
Simplifying Homebuying and Increasing Education. The President and HUD want to empower homebuyers by simplifying the home buying process so consumers can better understand and benefit from cost savings. The President also wants to expand financial education efforts so that families can understand what they need to do to become homeowners.

You do realize, however, that there are less homeowners (more renters) today than in 2002.

At 7/13/2008 10:16 AM, Blogger OBloodyHell said...

> 2008 has already eclipsed 2007 for FDIC failed banks.

Yeah, oooooh, five banks out of literally thousands.

If banking is so damned horrible a business, why the hell have I seen a literal explosion of new banks in my area? After most of the local banks consolidated under Wachovia (formerly First Union), Sun Trust (formerly Sun Banks), and Bank of America (which gobbled up Barnett Banks), there were like 6 actual banks and 2 credit unions in this area (ca. 250k people). The last 6-8 years has seen no less than a dozen and a half new banks (presumably branches) open in this area, including not less than four which have expanded into this area in the last 2 years (Regions, Capital City, Alarion, and one other whose name I forget at the moment).

Is this area somehow unique? I have to doubt that idea.

If the bank industry sucks so much, why the hell are so many eager to get into it?

And perhaps the reason so many have closed has to do with sheer numbers -- if a certain number open, what percent will be poorly managed? What percent will get hit by bad luck (which does happen -- an unusually high level of defaulters, for example, from an otherwise unremarkable and properly balanced pool)?

How many new banks have opened in the last 10 years, how many of the closures have been these new banks, and what, historically, would be the number of closures expected by typical management errors?

In other words, tossing out numbers may not mean squat:

CBS Evening News: More Americans Turning To Food Stamps: Amid Economic Slowdown, Record 28 Million In U.S. Expected To Use Program In Coming Year
NY Times: As Jobs Vanish and Prices Rise, Food Stamp Use Nears Record
The Independent: USA 2008, The Great Depression. Food stamps are the symbol of poverty in the US. Dismal projections by the CBO suggest that by fiscal year 2008, 28 million people in the US will be using government food stamps to buy essential groceries, the highest level since the food assistance program was introduced in the 1960s - and a sure sign the world's richest country faces economic crisis.

Horrible, right?

Or not:
The U.S. population will be at a record level of 306.272 million in 2009, and food stamp use by 28 million Americans will be about 9.14% of the population, just slightly higher than the 2005-2007 average of 8.78%. And the 9.14% projected food stamp usage as a percent of population in 2008-2009, will be lower than food stamp usage in 1980, 1981, 1982, 1983; and 1992, 1993, 1994, 1995 and 1996.
That was from April back here on CD.

As the man said -- Well, "sorta":
Numbers lie. Absolute numbers lie absolutely.

At 7/13/2008 10:28 AM, Blogger OBloodyHell said...

> Thanks juandos for explaining that really dumb people bought homes in the face of predatory lending, lax underwriting standards, de minimus regulatory oversight, privatization of gains and socializing of losses and the POTUS's ownership society mandate.

Yes, the PotUS (that's the proper capitalization, btw) used their EEEvil Mind Control Ray on stupid, gullible people to get them to buy things they could not afford.

You fail to grasp the three operative words in the first place:
really dumb people

Most Really Dumb People are usually Dumb because they haven't learned not to be Dumb. Getting taken advantage of is one of the key ways to learn not to be Dumb.

Or, to put it more paranomastically:
People are Morons because they never learned their Lessons.

I realize It Would Be Really Nice If there was another way to stop this, but there really isn't. The best way to learn is by experience, and that includes bad experiences, as well as good experiences.

If you ignored your parents telling you not to touch the hot stove, and you touched the hot stove, I guarantee you that you avoided making that mistake ever again in your life... an unpleasant experience, to be sure, but a lesson you never forgot.

Unless you are prepared to call for the dismantling of the existing Centralized Educational System, which denied most of them any semblance of a chance to avoid that lesson through other means, like, perhaps, understanding how money actually works, in favor of "feel good" experiences with no real life applications, you really don't have much call to complain that people get painful lessons when they actually get out in the real world and The Nanny isn't there any more to protect really dumb people from making really dumb mistakes... It's a privilege for them which was bought and paid for by The Left.

At 7/13/2008 5:19 PM, Anonymous Anonymous said...

Fannie & Freddie nationalized. Did it happen fast enough for you Kevin?

At 7/13/2008 8:10 PM, Blogger bobble said...

juandos/obh:"really dumb people"

LOL, not so dumb. banks loaned them the money to buy a house with a contract that said "if this doesn't work out our only recourse is to take the house. we can't force you pay back the money".

so they bought the house, now its not working out. so they mail the keys to the bank and walk away. the bank ends up owning property worth mabye half of the amount they loaned.

so juandos and obh, i'd say the banks are the really, really, dumb ones.

At 7/14/2008 8:27 AM, Blogger Kevin said...

I wouldn't say the worst is behind us (on, and this a is different "Kevin" than the "kevin" in other comments...)

Resets have peaked, but most people that will go to foreclosure will only start falling behind after the reset. That means the foreclosure peak will occur months after the resets peak.

So far, though, this downturn has remained very mild by historical standards. We're still in much better shape than during the recession around 1990.


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