Wednesday, January 13, 2010

Option ARM recasts

Calculated Risk is worried about option ARMs recasting over the next two years. He's a smarter guy than me, but I think those light blue people have already walked. Why continue feeding the monkey on house that's worth half the loaned value?

10 comments:

Funny Circus Bears said...

Your guess is as good as his.

Anonymous said...

Casey Serin singlehandedly accounts for about $0.003 Billion of those Option ARM defaults, and he walked away years ago.

Still no jail time, although his antics have put his family on the brink of homelessness.

Bill in NC said...

You'd be surprised.

I recently read one Californian's blog - he worried about his electricity being cut off, and what he was going to feed his kids.

But he was still paying all his mortgages (home, investment, business) because he had "integrity"

I'd think keeping the lights on and buying food for your kids trumped a mere legal contract!

Especially since _any_ home lender in California knows upfront their legal remedy under state law is repossessing the house (no deficiency judgments allowed)

If that lender owed you money and couldn't repay they'd not hesitate to file on YOU.

Lou Minatti said...

Especially since _any_ home lender in California knows upfront their legal remedy under state law is repossessing the house (no deficiency judgments allowed)

I believe that's the first only? Re-fi's are subject to deficiency, but they are so overwhelmed it's not being inforced. I could be wrong!

Paul said...

China the next Dubai?

For example, the Chinese already consume more cement than the rest of the world combined, at 1.4 billion tons per year. But they have dramatically ramped up their ability to produce even more in recent years, leading to an estimated spare capacity of about 340 million tons, which, according to a report prepared earlier this year by Pivot Capital Management, is more than the consumption in the U.S., India and Japan combined."

Bill in NC said...

"purchase money" is the phrase used.

whether or not that applies to re-fis is a matter for future case law to decide.

as a practical matter, it's cheaper simply to repo the property.

Funny Circus Bears said...

The so-called morality issue of paying your mortgage is utter bs.

Your mortgage is simply a contract written by the bank which outlines in detail to the nth degree the obligations of each party and the consequences of not meeting those obligations.

By ceasing payments the mortgagee is simply choosing to accept the consequences.

Corporations, including banks, routinely make the same exact choice and are often applauded for doing so as it is seen as "cleaning up their balance sheet".

Doug said...

Your mortgage is simply a contract written by the bank which outlines in detail to the nth degree the obligations of each party and the consequences of not meeting those obligations.

I dunno-- would you default on a loan from a friend or a hometown bank because it would simply make more sense for you money-wise? I wouldn't.

Doesn't it simply feel more "right" with a big corporation because it's impersonal and you're stickin' it to the man?

The very term "obligation" seems to convey some sort of morality, doesn't it?

Corporations, including banks, routinely make the same exact choice

If you're making a moral argument, "the banks are doing it!" sets a pretty low bar.

Chris said...

You're right Lou. I think CR has mentioned your comment before but he decided to make his comments brief. When Tanta was alive, I believe she predicted a wave of defaults well before the recasts/resets. Also, CR didn't mention that Option ARMs are predominantly a California/Florida/Arizona/Nevada issue. I believe more than half the Option ARMs in the U.S. were issued in those four states alone.

Anonymous said...

Why would they walk?? They are paying tax deductable rent to these note holders and there is always the potential that a recovery or government handout will save them, plus walking will kill their credit for years. So I'd wait it out, and I think they will also.