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Next Wave of Financial Crisis - Happening Now

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posted on Sep, 18 2009 @ 05:41 PM

"Option" mortgages to explode, officials warn

WASHINGTON (Reuters) - The federal government and states are girding themselves for the next foreclosure crisis in the country's housing downturn: payment option adjustable rate mortgages that are beginning to reset.

When the balance of the loan reaches a certain level or the mortgage hits a specific date, the borrower must begin making full payments to cover the new amount. The loan's interest rate also may have been fixed at a low level for the first few years with a so-called teaser rate, but then reset to a higher level. Because the new monthly payments can be five or 10 times what borrowers are accustomed to paying, they "threaten a much greater hit to the consumer than the subprimes," Goddard said, referring to the mortgages often extended to less credit-worthy borrowers that fed the first wave of the financial crisis.

"It's the other shoe," he said. "I can't say it's waiting to drop. It's dropping now."


I think we are going to see another wave hit us soon. There are many that are jobless burning through their savings to pay their mortgage.

What are they going to do when their payment is increased 5-10 times and they still don't have a job or they are working at McDonalds for $7 bucks an hour?

posted on Sep, 18 2009 @ 05:44 PM
reply to post by lucentenigma

cue the maniacal cackling

no but swine flu splash across the MSM for the next few months with little mention of the numbers of foreclosed homes and people loosing jobs...(and their homes)

[edit on 18-9-2009 by warrenb]

posted on Sep, 18 2009 @ 05:45 PM

We are no where out of the woods yet. It is just beginning. It is why I keep laughing at our politicians and banks claiming everything is just fine.

posted on Sep, 18 2009 @ 06:06 PM
I wonder how much they'll throw at it this time, of if they will even bother attempting a bailout if things start to collapse.

As I pointed out in Space Exploration earlier, the first of the bailouts last year would have funded 16 colonizing missions to mars carrying around 320 people all told. Instead we gave some bankers a Christmas bonus while millions went bankrupt.

Any guesses as to what awesome benefit to future generations they'll sell off this time to give the banks a pay raise, or will the house of cards just collapse and drag us all down for good. V_V

posted on Sep, 18 2009 @ 06:13 PM
This should make it all the more clear to the American public that bailing out these banks is the wrong thing to do. Businesses that fail, no matter the size of the business (GM cough) are businesses that don't deserve to exist. The market has spoken. If a business is failing, it needs to change... bottom line.

These businesses set up their own fall, and the taxpayers (who are also customers of the business) pay for their loss. It is unsustainable. Every bailout is a reward for failure.

As for being out of the woods, almost every thing the government does takes us deeper into the woods. We are on a course to be economically unsustainable, and we are only speeding the process. Some of us saw this coming years away, and were ignored. For Washington, Wall Street, and the public to ignore us, is to seal their own fate.

posted on Sep, 18 2009 @ 06:34 PM
You forgot to mention the commercial real estate collapse that is happening. Not only will we have another wave of foreclosures but on top of that we'll have a wave of commercial loan defaults. Its like two 2008 disasters rolled into one. This is why they call it a depression.

[edit on 18-9-2009 by truthquest]

posted on Sep, 18 2009 @ 06:39 PM
reply to post by lucentenigma

Yes it is starting to lean...badly...
FDIC Considers Borrowing From Treasury to Shore Up Deposit Insurance

Federal Deposit Insurance Corp. Chairman Sheila Bair said Friday her agency may tap its $500 billion credit line with the U.S. Treasury to replenish its deposit insurance fund, though she appeared cautious about doing so.

"We are carefully considering all options" including borrowing from the Treasury, Ms. Bair said Friday after a speech in Washington.

Ms. Bair has already warned banks that they may face an assessment increase to bolster the fund. Friday, she said there are also other little-known options available to the agency, including requiring banks to prepay assessments. The FDI]

[edit on 18-9-2009 by burntheships]

posted on Sep, 18 2009 @ 07:13 PM
reply to post by truthquest

You forgot to mention the commercial real estate collapse that is happening. Not only will we have another wave of foreclosures but on top of that we'll have a wave of commercial loan defaults. Its like two 2008 disasters rolled into one. This is why they call it a depression.

Some say that the commercial real estate collapse is not going to hit us nearly as hard as the sub-prime collapse. I think it will likely be another opportunity for the government to 'come to our rescue'.

posted on Sep, 18 2009 @ 10:11 PM
I was waiting for that chart to pop up. Been following this for over a year at Karl Denninger's Market Ticker.

We also forgot to include the credit card defaults that are occurring as we speak.

Face it the consumer is up against the wall unable or unwilling to take on more debt, which is just what the politicians are prescribing at the moment. Yeah give the dieing drunk another drink. That'll help.

We also need to get the fraud out of the system. I don't trust anyone's balance sheet at the moment. Think Enron but much wider. Right now no one has confidence in the market participants. I think many are realizing what the ponzi scheme is all about and realized moral hazard was already breached when the banks were able to borrow from the gov at 0% and charge the tax payer 30% to borrow it back. I mean we all know they are insolvent and we are the ones keeping them on life support while they "hope" they can earn their way out. Right. But let's screw the people that are keeping us alive.

As far as another bailout is concerned, I don't think they will be able to do it. We are having issues financing the promised trillions now, though there are ways they can make people flee to treasuries but I don't want to even consider the fallout from that. It's a complex game that is being played with many nuances and factors. One error and the whole thing could unwind very abruptly or we mutter along for 10 or 20 years.

posted on Sep, 19 2009 @ 12:23 AM
Wait for it...wait for it...

Cash for Clunkers!

posted on Sep, 19 2009 @ 02:37 AM
Okay, keeping in mind as I have said many times that I'm a financial ignoramus, will these homes be lost because the homeowners were stupid and got a bigger mortgage than they could pay off, or are the banks jacking up the interest rates higher than could have been reasonably predicted?

For example, if the contract says something like "5% interest for 5 years and 25% interest for the 20 years after that", then it's the homeowner's fault for buying something they can't afford. But if the contract says something like "Every year, we adjust the interest rate to whatever the current rate is (that we decide)" then it is the bank's fault for gouging their customers who can't defend themselves.

If it's the first scenario, I don't feel for these people at all, unless what they were getting into was somehow misrepresented. If it's the second scenario, then shame on the banks, especially after they already got all that taxpayer money for free, and there should be riots in the streets.

posted on Sep, 19 2009 @ 06:28 AM
reply to post by DragonsDemesne

Unfortunately an option arm is the combination of both scenarios so all sides are at fault.

An option-arm or pick a payment loan works like this:
a) you can pay it off i believe in 15 years
b) you can pay it off in 30 years
c) you can pay only the interest on the loan
d) you can make minimum payments less than the interest on the loan.

using option c and d, the balance is added to the principal of the loan and usually the loan will recast after x amount of time or when the principal reaches 125%.

Guess which options the majority of people chose above?

So both are at fault in this. The lender for offering something like this and the borrower for taking out a loan like this for a house they normally could not afford.


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