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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."
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
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.