Sunday, December 14, 2008

60 Minutes: A Second Mortgage Disaster On The Horizon

As correspondent Scott Pelley reports, it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy. In the executive suites of Wall Street and Washington, you're beginning to hear alarm about a new wave of mortgages with strange names that are about to become all too familiar. If you thought sub-primes were insanely reckless wait until you hear what's coming...

The trouble now is that the insanity didn't end with sub-primes. There were two other kinds of exotic mortgages that became popular, called "Alt-A" and "option ARM." The option ARMs, in particular, lured borrowers in with low initial interest rates - so-called teaser rates - sometimes as low as one percent. But after two, three or five years those rates "reset." They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500.

Now the Alt-A and option ARM loans made back in the heyday are starting to reset, causing the mortgage payments to go up and homeowners to default.

"The defaults right now are incredibly high. At unprecedented levels. And there’s no evidence that the default rate is tapering off. Those defaults almost inevitably are leading to foreclosures, and homes being auctioned, and home prices continuing to fall," Tilson explains.

"What you seem to be saying is that there is a very predictable time bomb effect here

Asked how many of these option ARMs he imagines are going to fail, Tilson says, "Well north of 50 percent. My gut would be 70 percent of these option ARMs will default."


9 Comments:

At 12/14/2008 10:57 PM, Blogger MogwaiHunter said...

Oh yes, the Option Arms. I remember being down in FL helping my boss set up a mortgage branch and Countrywide Rep. coming in and explaining how the Option Arms were so great! He had customers cashing out of one home and buying another couple homes and then cashing those out and buying more... the customers were really 'making' the money work for them!!!

Pretty neat when the bubble is inflating... not so neat when it pops.

 
At 12/14/2008 11:02 PM, Blogger MogwaiHunter said...

I think Tilson is being optimistic about being halfway through the mortgage crisis... Its just starting, long way to go.

 
At 12/15/2008 6:48 AM, Blogger Randy said...

Also, seemed a bit optimistic about equities also. His comment about "Forward looking" and finding bargains today...

I personally think we'll see a DOW 5,000 before all is said and done.

Thanks for commenting Mogwaihunter

 
At 12/15/2008 7:32 AM, Anonymous Anonymous said...

Where the hell is my man Schiff - he should be up there taking credit for his predictions. Straight genius, that guy.

 
At 12/15/2008 10:15 AM, Anonymous Anonymous said...

Ouch. Wow.

Agreed, I think he's too optimistic on the equities too.

Randy, you do great work man. Thanks again for all this.

 
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At 7/25/2011 6:44 AM, Blogger Mika said...

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At 1/14/2013 5:37 PM, Anonymous QUALITY STOCKS UNDER 5 DOLLARS said...

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At 4/03/2014 12:02 PM, Anonymous PENNY STOCK INVESTMENTS said...

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