Saturday, March 13, 2010

The Complete Guide to Toxic Mortgages, Option ARMs, Distressed Properties, and Failed Loan Modifications

An updated chart highlighting the option ARM and exotic mortgage loans made during the height of the bubble still shows us that many loans will go bad in the next couple of years. We need to remember that the vast majority of troubled option ARMs were made from 2004 to 2007. While analysts claim that there will be no reset problems, courtesy of low interest rates, the real problem stems from the recast of the mortgage. Much of this is typically hidden until it explodes like a financial time bomb. The reason this issue has somewhat lost steam in 2010 is that now, the really toxic loans are segregated into a handful of states including California, Florida, Arizona, and Nevada. If you live in these states, be prepared for additional bumps in the housing road ahead.

Read the rest here.


  1. Add the sins made in the commercial mortgage segment and things look dicey going forward:

    Fixed commercial mortgages will need refinancing between $30 billion and $60 billion annually from 2010 to 2014. It soars after that.

  2. Another image for commercial mortgages:

  3. Bob, if I have interpreted some of your recent comments right, I find two of your positions in an apparent conflict:

    1) With regards to real estate, we may be bottom bouncing here with maybe a minor step down, but it is time to look at opportunities in real estate (if you need a house) because the majority of the damage has been done.

    2) You are short Treasuries because you anticipate interest rates rising soon. Certainly, no one should be long treasuries.

    If I've positioned that correctly, then my question is this: How can #1 and #2 be true? As you allude to in this post... won't higher interest rates cause a further significant collapse in the real estate market?

    What am I missing? Thanks!