Are We Nearing the End of the Subprime Follies?

Posted on March 26, 2008
Filed Under Economy, Mortgage Smarts | Leave a Comment

About a year ago, I started writing about what I saw to be looming problems in the mortgage industry. Check out my related posts on The Real Problem With Subprime Loans and this mortgage come-on in  Mortgage Madness – Homebuyers Beware.

Within a few short months, things really started downhill and had tanked pretty well by the end of 2007. You can read more at imploded mortgage lenders where they track all the lenders that have folded since late 2006. So far, were at 246 – and counting.

Are we at the bottom? Probably not, but getting close. There’s certainly more trouble on the horizon. We just won’t know for sure until after it happens because all one can do is guess how many folks will actually default.

Okay, that’s not entirely true. We can probably assume most all of the subprime adjustable rate mortgages waiting to reset to higher rates, will end up in default because as the feeding frenzy was reaching it’s peak, the business being written made less and less fiscal sense.

According to this recent article, we should see ARM resets peak during the next couple months.

Nationwide, 1.5 million subprime adjustable-rate mortgages will reset to higher interest rates this year - with May and June being peak months, said Rick Sharga, a spokesman for Realty Trac, an online marketer of foreclosure properties.

Many of those borrowers are vulnerable to foreclosure either because their monthly payments will become unaffordable when the rate changes, or they already are having trouble making their payments.

Foreclosure filings typically are issued after a borrower has been in default for 90 days. Those borrowers then usually lose their home within three to four months if they can’t work out a deal with the lender or find a way to pay what they owe. Translation: Those whose loans reset in May and June could be in the foreclosure process by September and lose their home by the end of the year or early in 2009, Sharga said.

Not sure I entirely agree with this being the peak. It may be, but based on the most common reset periods of 2 and 3 years, I would give it until Spring of 2009 before saying we’re past the worst. It certainly won’t be over, but having seen the worst, the remainder could be more accurately estimated.

Why is this important? Because this isn’t just about people losing their homes…. continue reading….

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