(snip)"“Bernanke told Congress last month that the housing swoon ‘will likely continue to weigh on economic growth over coming quarters, although the magnitude of the drag on growth should diminish over time.’”
But it will take longer than you might think for that negative influence to
decrease. Let’s take a look at the following table. This shows the amount of adjustable rate mortgages that reset each month for the first half of this year and will reset for the next 18 months. Note that these reset numbers are a driving factor in the increasing rise in foreclosures. Pay attention to the numbers I highlight in red for January through June of 2008. The largest portion of mortgage resets is not until next year.
($billions)
Jan '07 $22
February $25
March $35
April $37
May $36
June $42
July $43
August $52
September $58
October $55
November $52
December $58
Jan 2008 $80
February $88
March $110
April $92
May $76
June $75
July $50
August $35
September $26
October $20
November $15
December $17
We have just seen $197 billion of mortgage resets so far this year. That is less
than we will see in two months (February and March) of next year. The first six months of next year will see more than the total for 2007 or $521 billion. This suggests to me that the number of foreclosures is due to rise dramatically from the already high current levels, putting more homes into a weak housing environment.
These homes that are going to see reset prices are for the most part not going to be able to be rolled over into a traditional 30-year mortgage, because there is not going to be enough equity to get a traditional mortgage. "(snip)
from
IMHO this ARM mortgage data points to a number of very disturbing conclusions ...
- the mortgage default / foreclosure situation is going to get three times worse next year than it already has become this year
- it takes at least 6 months for a mortgage default to progress into foreclosure, then another month for the belly-up mortgage to filter back to a downgrade of the bonds / CDO's backing that belly-up mortgage, then another month for those downgrades to hit the bottom line of the banks / hedge funds / pension funds / private investors that own those bonds and CDO's This means that the fireworks we've seen so far in regard to bank / hedge fund / pension fund / private investor losses are merely a drop in the bucket compared to what's in store for the second half of next year.
- as referenced in other threads, this week major lenders severely tightened their creditworthiness requirements for future loans and refis. Very few people are going to be able to qualify for refis which require a 20% down payment / equity payment, which require fully verified income etc. Because of this, lots of ARM homeowners will have no choice but to keep making mortgage payments that are hundreds of dollars per month higher than their present payments in order to avoid bankruptcy. But in the absence of a huge pay raise, the extra money for those ARM mortgage payments (or for that matter extra money for higher food prices, higher energy prices, higher insurance costs) will have to come from a cutback in spending on other things which are NOT 'essential'. And ladies, strip clubs and lap dances are NOT 'essential'.
The way that this is shaping up, I'm glad that I'm not dancing live anymore. If I were, though, I would be heading for the most upscale clubs I could find. Based on the data from John Maudlin's weekly article, it would appear that 'middle class' club customers are going to have a lot fewer dollars to spend on anything non-essential next year.
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