This is not over
A long road indeed.
About 3 years ago when the walls of the real estate market , there was talk of a soft landing.
It appears that it was all wishful thinking. Now the media is doing the full court press raving about the real estate market making a recovery. That the light is at the end of the tunnel and the dawn is upon us. It is over.
I am here to tell you its not over. This recovery is a game of give and take, which amounts to giving us nothing and taking everything. The players of this game are unemployment, consumer spending and the reason why we are in this mess, real estate. If you want to be more specific, it is mortgages that are still crippling us.
Adjustable Mortgages Loom as Threat to Housing Recovery
Compared with subprime loans, option ARMs are fewer but tend to have larger balances. Resets on option ARMs in recent years have often doubled the payments.
“Everyone’s been focused on subprime, but we’re more concerned about this,” said Todd Jadlos, managing director of LPS Applied Analytics, which analyzes data for the financial industry. “By the time subprime defaults had increased 200 percent, in June and July of 2007, option ARMs had gone up 400 percent. People just didn’t notice because the overall numbers weren’t as high.”
First American CoreLogic anticipates 600,000 option ARMS will reset within four years.
Option ARMs, which lenders stopped offering last year, gave borrowers four payment options: less than the interest, which increases the balance every month; just the interest; the equivalent of a 30-year fixed-rate mortgage; and the equivalent of a 15-year fixed.
Three-quarters of borrowers take the minimum option, which usually expires after five years or when the balance reaches a cap, generally 110 percent to 125 percent of the original loan, according to the Mortgage Bankers Association.
Once the cap is reached, borrowers have to pay down a higher balance at a higher rate in a shorter period of time.
“This was a loan meant for sophisticated investors, or people who expected their cash flow to increase over time,” said Elena Warshawsky, a residential credit analyst with Barclays Capital, which expects 81 percent of the option ARMs originated in 2007 to default, with many ending in foreclosure.
Do you think any of these owners are going to want to stick around when they see their mortgage debt while the value of their homes drop and they are having a hard time to sell? Nope. They are going walk over to the bank and turn in their keys, just like what a lot of other people are doing.
For those of you are counting on Uncle Sugar’s milk money, I am here to say that teet is looking rather dry.
With Ted Kennedy’s passing, it appears that the Democrats are rallying together for health reform and Obama has recently announced that we are not f**ked. We are beyond f**ked.
In the new America, money is as tight as a performance America’s Best Dance Crew contestant. So when the real estate market gets re-shredded, do not expect any tape from the Federal Government.
Dangerous words on Wall Street
Do not be lulled into complacency because of the news you hear. Certain factions of Wall Street are still holding their breath. In fact what you should do is become more aggressive with your saving and examine other ways to cut costs and protect your assets.
Watch your backs folks. This is all far from over and if you are starting to experience some good times, I recommend that you take advantage of it and stock up on what you need.
I know you heard these words before and you are going to hear the again. Do not lower your guard.