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The "reset" problem could be a four-year drag on housing...

Posted by: Dean Foust on November 2, 2007

Much has been written in recent months about as bad as the subprime problem looks at the moment, what with rising defaults, it will only get worse. That’s because the peak for “resets” of all those subprime mortgages with initial teaser rates as low as 1%, but destined to rise to 7%, 8%, 9% or higher doesn’t occur until later this year. The peak months for subprime resets will be between December and February.

That’s true, and the inference is that if we can ride out the next four or five months, then we’ve survived the worst and hopefully housing prices will start to stabilize.

Sorry. The International Monetary Fund just released a report on the global outlook and it included a chart produced by researchers at Credit Suisse that takes a broader look at ALL forms of adjustable or “resettable” mortgages. And the picture ain’t pretty. All combined, we’re looking at another four years of mortgage resets, which means another four years of hard road for the housing market.


Reader Comments

Brandon W

November 2, 2007 12:53 PM

This ought not be news to anyone. I saw this chart several months ago.


November 3, 2007 7:12 AM

Its time for the companies to be more proactive and not reset some of the loans or do more to adjust interest rates on the ones in trouble. Its better to lose some of your profit than get stuck with a house in a down market.

Ricardo B

November 3, 2007 8:06 AM

That's stupid. Short term rates have come down and long term rates are flat. There is no way these mortgages will be reset to 8-9%. Plus, if financiers do hold their subprime borrowers to the original terms, it will only back-fire on them. Greedy as they are (and you know it), these mortgages will be reset to fixed rates and/or something reasonable enough for these folks to keep servicing their mortgages. Now, stop being alarmist; feeding fire to the frenzy.

Brian W

November 3, 2007 9:56 AM

Maybe, maybe not. Given that the resets are 3-4 years out, the impact of these resets is highly dependent upon the ability of the homeowners to sell and/or refinance their homes. If we reach enough of an equilibrium in the short term (end of '08), then it doesn't seem unreasonable that most of these OARM's will be "gone" well before they reset. Isn't that accurate?

What's more worrisome to me is the Atlanta Fed's report that the overall increase in home ownership was due to the new financial vehicles for subprime borrowers. The odds see slim of these products coming back in large enough quantity to bring back those "base of the pyramid" buyers.


November 3, 2007 12:38 PM

I feel this is a very smart move. God is trying to bring families closer together. So he fixed it so we would decide to live like mexicans. He wants famililes to come together and save their earnings instead of giving it all to the banks. He's such a good God.
Very thoughtful I say.

Barry Sasser

November 3, 2007 5:49 PM

Ought not - sure, but nobody discusses it. $750 Billion resets from Dec '07 - June '08. Alt-A will bring the industry to its knees. Hide it in the pantry with your cupcakes. It's a little secret, just the Robinson's affair... Wall St. wanted to lock in their 10/31 bonuses before facing up to reality.

Shane S

November 3, 2007 10:41 PM

True, this shouldn't surprise anyone who has been paying attention. Unfortunately, most people are not paying attention. Plenty of people out there still think everything will be fine by Spring. Chase the Rainbow.


November 4, 2007 7:11 AM

I agree, the immediate highpoint for the subprime resets will be later this year, between Dec 2007 & Feb 2008.In Dec 2007 by my figures reset for this month will be $58.Billion, & in Jan 2008 it will jump to $80.Billion,an increase of $22.Billion. These two months seem to be the biggest increase,although for the rest of 2008 is high,the difference is not as much. month to month.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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