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| User Info | And So It Begins - The NEXT Implosion in forum [Ticker] | |||
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Genesis Posts: 66463 Incept: 2007-06-26 
Royal Flush! 
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http://market-ticker.denninger.net/archi....
---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me 2008-08-06 09:11:53
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Exorcism Posts: 296 Incept: 2007-11-30 
Denver Area
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So the question is how fast will Hanky be using that 800 billion the GSEs don't need?
---------- The fact that we live at the bottom of a deep gravity well, on the surface of a gas covered planet going around a nuclear fireball 90 million miles away and think this to be normal is obviously some indication of how skewed our perspective tends to be. -Douglas Adams 2008-08-06 09:21:48
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Alexandrk Posts: 326 Incept: 2008-02-21
Atlanta, GA
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I am thinking that they will wait for FRE to hit 3 or 4 before the stick save happens.
2008-08-06 09:22:28
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Bullionaire Posts: 1161 Incept: 2007-12-21
Hey Obama ! Kiss my black ass !!!
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I wonder how many people HELOC'ed out as much money as they could, then simply disappeared.It's outright fraud, of course, but you don't see any stories about it.
---------- "Now this REALLY smells like ass." - Karl Deninger 11/11/2009 2008-08-06 09:29:47
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Weezie Posts: 3420 Incept: 2008-05-19
Now shuddap and take your medicine...
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Quote:PIK/Toggle Bond debt is yet another example - you don't want to pay cash, you issue more debt instead to the debtholder. Hmmm... sounds familiar. U.S. Government anyone? ---------- The government isn't ****ing Santa Claus! 2008-08-06 09:39:20
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Sethdominus Posts: 2427 Incept: 2007-12-01 
Cleverdale, NY Suspended
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it will happen exactly according to plan
---------- "Fire rage, Wind soar, Earth ground, Water pour, open up my psychic door" Michael Tsarion.....Jordan Maxwell...my inspirations 2008-08-06 09:46:20
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Geoff Posts: 1529 Incept: 2007-08-18
NYC
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This is exactly what I have been saying all along. The option arms are going to wipe everyone out. It's why I can't buy into the short shallow recession. The PIK/toggle issue is also starting to get some notice. http://www.telegraph.co.uk/money/main.jh.... Goodbye private equity. ---------- C'est nous qu'on ose méditer de rendre à l'antique esclavage! Or something like that. 2008-08-06 09:49:42
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Mo Posts: 5043 Incept: 2007-06-26
Florida
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Quote:The option arms are going to wipe everyone out. They're certainly going to crash many of the banks. The option ARM loans are more intersting than the subprimes, though, in that they will have selective effects on real estate markets. They're concentrated in the bubble markets - particularly California, South Florida, Las Vegas, Phoenix, etc. Subprimes were everywhere. 2008-08-06 10:12:28
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Yaldor Posts: 1309 Incept: 2008-05-17
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Fed is up on the news....
---------- For every crash the probability of someone showing that he predicted it is near 1 . For every prediction of an imminent crash the probability of it being correct is almost zero 2008-08-06 10:18:24
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Genesis Posts: 66463 Incept: 2007-06-26
Royal Flush!
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Ultimately cash flow rules. When you book non-cash income you can't collect or spend, you dig yourself an ever-deepening hole and eventually the sides come crashing down on you.
---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me 2008-08-06 10:19:06
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Edodiver Posts: 66 Incept: 2007-11-02
CA
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Back in early 2006 I spent the better part of 2 weeks convincing a work colleague to avoid a Neg-Am Pay Option ARM for a $500K house in Woodbridge, VA. His wife was emotionally invested in the house, but after a concerted effort I convinced him to at least push back on the builder for a better principle amount. When he acted like he was going to walk on the deal the builder agreed to drop the price to $460K and through in granite counter-tops. I then convinced him that the granite counter-tops were radioactive (low dose, but true) and he pushed back again, and they lowered the principle amount to $450K. I then asked him to tell me what the builder's behavior indicated regarding the value of the house. He walked permanently. This was a relatively well educated guy, but it truly took a full court press from me and a few other folks in the office to get him to walk. As Geoff says this is going to wipe everyone (at least those with any kind of significant debt) out. Oh ****, that's just about everyone (student loans, mortgage, CC, and the list goes on). 2008-08-06 11:06:05
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Fugitivekind Posts: 545 Incept: 2007-08-20
Boston
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The recast on these loans have barely started. My guess is regarding the recast we are in the top of the first and the batter hasn't reached the batter's box. For those who purchased these products in 2003 with LIBOR and MTA so low they didn't start negative amortization until 2005. Assuming a 300k loan taken out in 2003 and neg am starts in 2005 with an average real rate of about 6% then the borrower will be neg amortizing that year approximately $700 per month. The index went up in 2007 so let's assume in 2007 that their real interest rate was 7.5%. We are now looking at negative amortization of about $1000 per month. For 2008 a good assumption is that the index is about 3%. Assuming a margin of 2.8% and a real interest rate of 5.8%. Then the borrower will have negative amortization of about $500 per month. Their balance is very close to 110% of their original loan amount (most investors were at 115% however). Automatically, these things recast after the 5th year. Based on my calculations we will not see the option ARM monster's ugly head really start to appear until the second half of 2009.
---------- There's something very strange about issuing debt to solve a problem caused by too much debt - Governor Mark Sanford (R-SC) 2008-08-06 11:14:21
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Genesis Posts: 66463 Incept: 2007-06-26
Royal Flush!
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If you make minimum payments (and more than half of all borrowers with them do) you hit mandatory recast-via-LTV-cap just under 3 years with a 115-120% cap. 125% gets you just over 3 years. Either way, we're just about to where it starts to get nasty. ---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me 2008-08-06 11:17:28
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Themortgagedude Posts: 3343 Incept: 2007-12-17
saint louis
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Talked to a friend of mine from my past life in bank examinations. He is truly WORRIED about some small town banks who are exposed to the CMO market. Gave me an example of a small town bank with 50 million in assets and 14 million of it was in CMO's. At a ten percent capital ratio currently that totally wipes out the bank capital. He tells me this will play out in several bank failures in his state if they do not raise capital. This is a midwestern state far removed from the shenanigans of California and Florida. And the bank has been a conservatively run institution with few loan losses, but they've been sold a bunch of **** sandwiches by their bond salesman. He states that this could play out over and over again because of what's on the balance sheets. Capital destruction is not going to be a good thing either just take 10 dollars of liquidity out of the credit market for every dollar of capital the banks lose. Balance sheets will be shrinking.
---------- Since September it's just gotten colder and colder. There's less daylight now, I've noticed too. This can only mean one thing - the sun is going out. In a few more months the Earth will be a dark and lifeless ball of ice. 2008-08-06 11:21:53
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Genesis Posts: 66463 Incept: 2007-06-26
Royal Flush!
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Cxx securitizations are all ticking time bombs. All of them. And everyone who owns them is lying. Witness Merrill's claimed "sale" at 22 cents. Its really a sale at a nickel because they bear all credit risk beyond the down paymen, as they financed the purchase. ---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me 2008-08-06 11:25:15
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Dvanderp71 Posts: 416 Incept: 2007-08-05
Amsterdam
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Could this also be the reason why Europe is positive today, while the USA is not? I cannot really explain it.
2008-08-06 11:26:23
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Fugitivekind Posts: 545 Incept: 2007-08-20
Boston
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I assumed minimum payment in my example. Gen, are you including the fact that the minimum payment increases by 7.5% each year? Those who took these out in 2006 will most likely see the recast before their 5 years are up unless the indices can remain relatively low. I would love to know the percentage of borrowers who couldn't make the 7.5% annual increase. That may make your prediction of a default starting in 2008 on the mark. I remember from about 2005-2007 I must have received telemarketing calls for option ARMs on the order of about 3 a week. I remember playing dumb and these folks were telling me that the interest rate was 1%. When I questioned them and asked to speak to a loan officer I always asked them what was the real interest rate and about half told me it was 1%.
---------- There's something very strange about issuing debt to solve a problem caused by too much debt - Governor Mark Sanford (R-SC) 2008-08-06 11:30:43
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Bluebird Posts: 453 Incept: 2008-05-02
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Can people refinance their Alt-A mortgage, before it resets? Probably the rate would be much higher than the original teaser rate and the house probably would be worth less than the original purchase price. But, if people still have a good job and be able to afford the new higher payment, is there anything that could prevent them to refinance? 2008-08-06 11:32:44
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Genesis Posts: 66463 Incept: 2007-06-26
Royal Flush!
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Well it STARTS at 1%. You don't make it to year 5 on any of these that I've looked at if you make minimum payments. Roughly 3 years is where they go boom, with some differences from one lender to another depending on the teaser (if any) and annual escalator. The problem is that at least half of all borrowers who took these are making only minimum payments. ---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me Last modified:
2008-08-06 11:34:06 by genesis
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Jc125d Posts: 2 Incept: 2008-04-24
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Ticker says about Option ARM: "often there was no or little down payment". As I recall, when trying to do a stated-income cash-out option ARM deal for a couple of retirees living on HELOC draws, the LTV World Savings would allow was less than 80% and they backed off the loan amount from the 90% LTV requested. So some equity was required. And I recall the reset was when the loan balance grew to 125% of the original amount. Even so, what "equity" there was 3 years ago is no more. And yes it is a time bomb. People used to see the 'get a 1.25% mortgage' signs stapled to telephone poles and ask why I was charging them 5.25% for a jumbo 5/1.
2008-08-06 11:36:57
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Mo Posts: 5043 Incept: 2007-06-26
Florida
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Gen, you're assuming lenders will act hastily to foreclose on people who can't make the new payments. They're not doing that now, why would it happen for the Option ARMS? They'll delay this as long as possible, and that would be the 5 year recast point. 2008-08-06 11:38:04
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Meatpuddle Posts: 630 Incept: 2007-07-26
Madame Merriweather's Mudhut Malaysia
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Maybe it's just me, but what is a water delivery man doing with two houses and a $690,000 mortgage on one of them? All with a household income around 80K? In reality, this guy could afford one house of about $240K, and even if you took his "liar loan" income statement of $165K, that still isn't anywhere near $690K, its more like $570K. Even though the article doesn't talk about it, I'm sure Mr. Truong traded up to his new house and owes even more on that one, so the story is just beyond ridiculous. Also, a rental income of $2500/mo suggests that the old house is actually worth less than half the mortgage amount. And when the recession/depression picks up steam, I'll give you one guess which direction the rental income will be headed. I like how they finish the article with some analyst chump that said FirstFed is well capitalized. 
---------- "the idea that you're "entitled" to a 5 or 6 percent 30 year mortgage is horse****, and so is the housing prices that it has created." - Genesis 2008-08-06 11:39:24
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Genesis Posts: 66463 Incept: 2007-06-26
Royal Flush!
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JC, the problem is that these guys got around the 20% equity with a second. Mo, the recast is triggered at THE FIRST OF: 1. 5 years. 2. The LTV cap being hit. If you make minimum payments on essentially all Option ARMs I've evaluated you hit mandatory recast at ~3 years. If you've got negative equity at that point in time (and essentially EVERYONE who bought in 06 and on does), you're ****ed. ---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me 2008-08-06 11:41:03
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Mo Posts: 5043 Incept: 2007-06-26
Florida
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I know 2 people making minimum payments on Option ARMs taken out in 2005 and 2006. They're both planning on walking away when the recast happens. Or when the lender forces them to walk away after the recast. Both areas where these houses are located have seen SIGNIFICANT declines on the order of 1/2 to 2/3 of the value of the mortgage. Neither has seen their 'mandatory' recast happen. 2008-08-06 11:46:48
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Genesis Posts: 66463 Incept: 2007-06-26
Royal Flush!
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They won't be waiting much longer for the letter to come in the mail. Later this year or early next.
---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me Last modified:
2008-08-06 11:48:03 by genesis
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