The regional manager of the San Francisco Federal Reserve, Craig Nolte, told an audience in Vancouver this week that there’s still trouble in them there ARM’s. From The Columbian:
The high rate of foreclosure has made Clark County No. 1 out of all 39 counties in Washington state in the first quarter of 2009. The problem could get worse before it gets better, given the lax lending standards and high number of adjustable rate mortgages issued during the 2005 home-selling boom, Nolte said.
“It’s not all subprime loans that are the problem. It’s mainly subprimes with ARMs,” he said.
Adjustable rate mortgages made up more than 23 percent of the area’s home lending while Clark County’s housing market was hot. Now those homeowners are overstretched as their mortgage rates adjust, which can raise the average payment by up to $300 a month.
And as Atrios is pointing out this morning, the problem is likely to get worse before it gets better.
Tanta, who is sadly no longer with us, in an old post reminds me to use the correct terminology to describe the problem. Option ARM rates are going to be recasting soon and in increasing numbers. That’s the magic moment when people can no longer make minimum payments, when they can longer make interest-only or neg-amortization payments.
When that magic moment comes, all of those people are going to look at how high their now unaffordable mortgage payments are. Then they’ll look at how much their house is actually worth relative to how much though owe. Then, maybe, they’ll try one of the various initiatives to modify their mortgage terms. And then, quite likely, they’ll jut walk away.
And these re-casts are coming in 2010 and 2011 in big numbers.
The point being, as Atrios succinctly says, is that’s why the failure to put in place cramdowns is so troublesome.
The banksters stopped it, and if nothing is done we’re all going to get to enjoy another round of mortgage-related calamity, presumably with similarly damaging results to the larger economy. So meanwhile idiots can talk about socialism and guns and gays and whatever, but the regular citizenry needs both the financial system and the larger economy to function well.
It’s absolutely fascinating, too, how some bidness guys ‘n gals think this is all just a bump in the road, and that everything will go back to what they thought was normal soon. Thus the silly talk lately here in Clark County from Republican county commissioners about how important it is to re-inflate the bubble to provide jobs, as if the larger systemic problem know colloquially as “big shitpile” doesn’t exist. Who the heck is going to be buying lots of new houses now, when the market is being depressed so badly and there seems to be no end in sight?
Beyond that, neo-liberal economic policy has been an utter and complete disaster. Continuing to pursue it, as the Obama administration and Congress are doing when it comes to the financial sector, is likely to produce the same result. Most regular people who screw up their jobs horribly get fired, but the banksters get our money and get to continue making a mess of things. Awesome.
It’s worth keeping in mind Republicans want the Obama administration to fail, so of course they are going to fight hard for the status quo ante. We still need a change we can believe in on this front, and if it doesn’t happen by the end of the year, things may get very interesting again.