Comments on: Option ARM: No one saw it Coming According to the Mainstream Media. The Alt-A and Pay Option ARM Tsunami Quickly Approaches. Charting the Option ARM and Alt-A Wave.

By: Ruby

Ruby — Mon, 01 Mar 2010 14:30:03 +0000

I live in Mass and the prices are not going down very much at all. Most homes are being priced for 2010 what the assessments were two years ago. There is a good amount of shadow inventory being sat on by the banks. I’m wondering if our market is going to bottom out in 2012-2013. I know that Cal and Fla had the lions share of Option ARMS but what about the other states. I would love a breakdown of Option ARMS and Alt A Mortgages throughout the US to understand which States are going to get hit the hardest. Does anyone know where to get this data????? I read that Realty Track stated that 70% of their foreclosure listings are shadow inventory that has not even been listed on the open market by the banks yet???? This is highly disturbing if we are getting ready for the next wave. It also allow the bank to control the market.

By: Prof. Samuel D. Bornstein

Prof. Samuel D. Bornstein — Sat, 20 Dec 2008 19:41:28 +0000

I would like to bring a very important bit of information to your attention that relates to this economic crisis that was overlooked until now.

On Sunday, 12/14/08, CBS 60 Minutes aired a segment “The Mortgage Meltdown”.

Scott Pelley’s piece on the 2nd Wave of Foreclosures overlooked a critical fact.
The segment missed the fact that this next wave of Foreclosures in 2009 Will Take Self-Employed and Smaller Businesses who have these TOXIC mortgages. In fact, ALT-A, Option ARMS, Interest-Only, the TOXIC Mortgages that are considered the “Troubled” assets in TARP were specifically marketed to the self-employed who fell prey to them.

The upcoming defaults on these risky “Toxic Mortgages” will result in an increase in foreclosures. But worse, once these small businesses fail, the resulting loss of jobs will cause millions to add to the ranks of the unemployed. Note that self-employed business owners (16.2 million according to the SBA) employ between 1-10 employees.

An NASE survey at http://www.nase.org , was the first to provide compelling evidence of small business involvement in the upcoming toxic mortgage crisis. The survey was created by Prof. Samuel D. Bornstein and Jung I. Song, CPA of BornsteinSong Consultants in Oakhurst,NJ,and was conducted by the National Association for the Self-Employed (NASE) which issued a Press Release on November 21, 2008.

According to this survey, it is estimated that 3,709,800 small business owners hold Alt-A and other toxic mortgages, and 1,279,800 are already delinquent as they have missed one to three or more monthly mortgage payments at mid-November, before the expected Resets that are scheduled to begin in 4th Quarter 2008 through 2012.

These small business owners will be at-risk of payment shock and default as their monthly mortgage payments skyrocket. Small business owners were especially targeted for these Alt-A loans which required little or no documentation of income which appealed to many small business owners who previously were unable to qualify.

The resulting defaults will be the cause of the upcoming second tsunami wave of foreclosures that will dwarf the subprime crisis and will take many homeowners, small business owners, and their employees when our economy can least afford it..
I

Thank you,

Samuel D. Bornstein
Professor of Accounting & Taxation
Kean University, School of Business, Union, NJ
Tel: (732) 493 – 4799
Email: bornsteinsong@aol.com

By: ELLEN

ELLEN — Sat, 20 Dec 2008 13:55:05 +0000

With the prime rate now at a historical low of between 0-0.25, won’t this make the resetting of Alt-A’s virtually a non-event (since rates are lower than when any of these mortgages were put in place?)

By: wtlf555

wtlf555 — Thu, 18 Dec 2008 22:03:17 +0000

While the dollars involved in the second round are staggering I don’t think it will have as large an effect as the first round of subprime. The subprime unwound years of increasing homeownership. Renters became buyers with toxic debt and when they defaulted they went back to renting. The next round involves fairly high earners who moved up and on default will probably buy again depending on lending standards regarding default. Maybe the same size house (50% off and 55 interest rates). I see the bonds taking another hit next year but the housing market supply and demand not changing. The only wildcards I see are second homes purchased with Option ARMS and rising unemployment of the relatively high earners.

Let me know if I’m missing something

By: Richard Kurtz

Richard Kurtz — Thu, 18 Dec 2008 20:05:31 +0000

“Worse, they only took these loans to begin with because paying the “teaser” rate and taking the option to make really super low payments was what made them buy a house they could never come near in two lifetimes otherwise.”

Agreed. People need to buy homes that they can afford instead of just buying their dream home and then going in to massive debt. This is the reason why the american economy is doing so bad.