Thursday, February 04, 2010

Why The Foreclosure Crisis Is Not Over

So in 2007 the foreclosure crisis and credit meltdown was kicked off by subprime loans resetting to where people had to start paying on principal and interest, effectively cranking their monthly fee through the roof. At the time the crazies were blaming poor people and such since subprimes are/were generally held by those with less income.

Well guess what, we are about to be smacked in the head by something almost the same size as the subprime reset - the option ARM reset. ARMs are ajustable rate mortgages which basically means each year or so your interest rate may increase or decrease a bit based on some federal rate the loan is indexed against. Option ARMs, however, had the added awesomeness that you could defer paying on you principal until some date at which time you would have to start paying principal and interest; just like subprime loans! Hurray! Unlike subprimes, these were not generally held by those with less income (read: the poor) but more middle-class type people.

And the reset that blew us up the first time on subprimes is about to happen on Option ARMs.

Here is a graph to illustrate the point. You are basically looking at two mountain peaks. The one on the left in purple was the subprime reset in 2007 that blew us up the first time. The one on the right, in mostly blue, is what is going to happen over the next year or so and is what will blow us up again. Why again? Because our super smart congress has done shit to make any changes. Reactionary dumbasses. But that is another post.

Can we avoid it? Sure. Pass things like bankruptcy cramdown that allows homeowners who can no longer afford their house to settle the mortgage through bankruptcy. You know, like we could do for decades until 2006 or so - right before the crisis - where congress in all its awesomeness decided to revoke that law on the behalf of the bankstas which in no small part contributed to the severity of the explosion.

The frustration and contempt I have for these mental midgits/egoasses makes me feel like I need a cold shower.

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