A reader left a link to an article by Gary Kaltbaum that included this table. It shows the dollar value, in billions, of the adjustable mortgage resets of recent months and what is coming down the road month by month.I didn't see where Gary got the info from (apologies if I missed it). In his article Gary spells out a logical case for how big of a problem this could be, as I read the article he is certain this is bad and has gone 100% cash in client accounts.
Looking at next March the $110 billion might work out to 366,000 households if mortgages average $300,000. Using that dollar figure and adding up all of the months greater than $50 billion I get close to 2.75 million households impacted.
If that number is close to correct how many of those households will have to severely alter their spending habits? If that number turns out to be large then what does that do to the economy? While I don't have the answers I suspect that, despite one reader's comments, it would not be 1929 all over again.
7 comments:
Roger - I read your post and it seems you infer that Gary has gone 100% to cash due to the mortgage reset issue. I listen to Gary's show everyday and I just wanted to say that Gary is not in cash because of this issue noted. He is a strict follower of William O'Neil so he is in cash since the Market is in a correction (accotrding to IBD). If the market has a follow through day Gary will look for set ups and move out of cash regardless of his Macro views. - BigBill
Going to 100% cash seems an odd way of trading on this idea.
The Fed's response, if this scenario plays out the way Gary expects, will be to print more money.
Cash is a horrible inflation hedge. More money printed means that people with 100% cash will be losers in the long run.
I've read Kaltbaum's stuff before, and it is not impressive. He provides no context for any of this.
I had a lenghty meeting with representatives from two large banks Thursday past on properties they wished to divest from their portfolios and a lunch with the largest independent mortgage broker in our state.
My impression based upon their cumulative remarks.
It is now next to impossible for poor credit risks to get financed, which is only appropriate. Almost 30% of home applicants in August to date have been rejected for mortgages. Almost 70% in urban areas. The rental market is now back to where it was in 2002...very good and a experiencing a gradual rise in rental rates.
The commercial market is generally stable to slightly down. Small business loans have more stips in spite of local political pressure for "minority" groups. A colorblind standard is now in place. I can't argue with that - long overdue.
Banks desparately want to work with homeowners in trouble. Loans are being negotiated left and right to keep willing families in their homes with some success. The true deadbeats are getting clobbered.
Banks are releasing property on foreclosed inventory at approximately 45-70 cents on the dollar, depending upon location,etc.Properties are being bought by cash pools in many instances, or given reasonable terms by the banks - but not "free" terms.
NO ONE I spoke with showed any sign of panic. There are going to be losses, and some pooly managed companies will be hurt, or fold. The view from the bankers is that is is simply good riddance to bad rubbish.
All agree that appraisers need to be under strict control of the lending institutions. Independent appraisers have more often than not extracted unrealistic value from mature properties. Bankers are tired of appraisers first asking clients "What value do you want to get out of this property?", and then finding comps anywhere to justify it.
The mortgage industry is shaken and stired, but with the Fed giving a little bit of assistance and self-tightening procedures, the storm will pass sooner rather than later, imo.
I hardly think putting appraisers under the control of lending institutions is any sort of solution to undue influence. Talk about out of the frying pan and into the fire....
Roger,
Any chance of a comment regarding my questions yesterday? Thanks
John: What we have had the past several years is the appraisers coming under the control of realtors. They have been able to use appraisers to pump up values in a way to "buy" a listing. Then, to provide the lender with an inflated value so that the buyer could then get a credit back in escrow. (the bloated value less the seller's real price).
I've seen the reset statistics originally in John Mauldin, Millennium Wave Advisors here (among many sites)
http://news.goldseek.com/MillenniumWaveAdvisors/1186326060.php
and he attributes the data in a later newsletter to 1010data.com
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