THE FUTURE OF THE HOUSING MARKET: 2009-2010 - Foreclosures, Recession and Loan Resets.
Ruth Lee
While the financial markets have seemingly stabilized in the wake of massive taxpayer intervention, many Americans have started to feel optimistic about the economy. Independent mortgage bankers across the country have seen enormous demand for refinances with a relative resurgence of purchase demand. However, are we feeling a little too good about the economy? Are we still solely using Wall Street as a litmus? Actually, yes we are…. because it is easy…and we still believe that the market is somehow “smarter” than we are - being able to neatly tie in economic metrics and reporting into a simple number with a plus or minus next to it. (The Dow rallies - we are golden… the Dow falls - things are not so good.) However, in truth, the Dow has been a poor harbinger of future financial information. Three months before the meltdown, financial gurus were still promoting investment in financial services - which turned out to be a “double plus ungood” financial plan.
We cannot be lazy about viewing the economy and our place in it. We cannot continue to take the “infomercial green means go, red means stop” method of analyzing our financial futures. While the media has been entirely focused on the evils of subprime… you can review the chart below to see that ARM resets are just getting started… The green bars from subprime resets have bottomed out in Q2 09… however, the tide of resets for Option ARMS and ALT A are just getting started.
What does that mean? Specifically, subprime loans were made to marginal borrowers with poor credit and/or an inability to prove income and assets enough to qualify for standard mortgages. In the early 00s, Option ARMS and ALT-A were given to marginal borrowers with good credit and/or an inability to prove income and assets.
