New Housing Bubble Chart From Credit Suisse

May 21, 2009

The older housing chart (from February of this year) showed the pinnacle of resets taking place in 2010. Now take a look at the new chart. That big mountain of mortgage resets has now been projected to not occur until 2011 or 2012 therefore probably extending the housing crash! What does it mean?

     

It means there are hundreds of billions of dollars of Option ARM loans out there that will be, at the least, resetting further into the future and most likely extending the housing crisis. And if the borrowers holding these loans are making only the minimum payments (which sometimes is as low as 75% of only the interest with NO principal being paid), it means their loans will most likely be recasted also pushing all that unpaid interest onto the balance. Upon mortgage reset date, this gives a one-two financial punch in the face to the borrower where he now has not only a higher interest rate, but also a higher mortgage loan balance. Many of these borrowers will collapse under the weight and become just another victim of the housing bust and further delaying a full economic recovery.

Note: The chart shows 'recasts' and 'resets'. A recast is when a mortgage is readjusted to take into account full amortization. A reset refers simply to an interest rate adjustment. Option ARMs are the loans that are most likely to be subject to recasting.