Crash Coming? Does the Infamous Mortgage Reset Chart Matter?

I know that this is a post that I have done before, but I wanted to revisit it since a lot has changed since this post was originally made.  With the terrible foreclosure numbers that came out yesterday are we finally moving out from the “eye of the storm” on the mortgage reset chart or is this rise from a different animal such as “strategic foreclosures” and/or FHA ?

We have all seen this chart by now, but just in case you haven’t its right here for your clicking pleasure.


Looking at this chart one would think to themselves “Well it look s like we have another wave of bad mortgages and foreclosures coming” … but why isn’t any of this coming up with the banks projections? Before I ask any more ridiculous questions lets break it down into bull v. bear camps:

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  1. The housing market is going to regain its losses by the time the resets come and all the millions of honest Joe flippers find their dreams of being “rich dad” come true. No desire to foreclose.
  2. The Mortgage Backed Securities make a positive return and the banks balance sheets are golden. Stocks gain on real earnings without rich uncle Ben.
  3. Option ARMs and Alt-A loans aren’t as bad as Sub Prime. These people will continue to pay their mortgage.
  4. A majority of the Option ARMs and Alt A loans have already been part of the massive amounts of defaults prior to their resets. (Is there a way to find out if this is true or not?)
  5. People in these loans will be able to refinance into low fixed rates without losing the home thanks to the low interest rate initiative of the FED.


  1. A possibility is banks won’t talk or plan for the risk of these time-bombs until its already exploded in everyone’s face… kinda sounds familiar.
  2. We are currently (Apr 2009) in the lull point of the resets where Sub Prime has tappered off hence the positive news around wall street with talk of the “End of the credit crisis.” But Alt As and Option ARMs are only starting.
  3. Based on the reaction time of the market with the Subprime wave (The top Oct 2007 for simplicity) The market should react negatively sometime in 2010 when its neck deep in this garbage and last almost to 2012.
  4. To retort the points in the Bull category houses will not regain the chunk of lost value and when the reset comes knocking people will not see the point of getting a new mortgage on a home that they owe more on no matter what the interest rate is. (As we have seen those granite countertops aren’t keeping people in)
  5. So how many banks do we have left?
  6. All of the “quality” paper that American Taxpayers have been forced to buy rots away and when the bailout tries to make round 2 the people of the United States actually speak up.
  7. The United States loses all credibility and our enormous debt blows up and the United States goes bust with no investors abroad… chaos . Video below shows a reaction of an economist to this possibility:

Im curious what your thoughts are out there… should this graph alarm us or not? Am I missing any points?

UPDATE 1/5/2010:  There is another article that is related to this chart and the stock market at:

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19 Responses to “Crash Coming? Does the Infamous Mortgage Reset Chart Matter?”

  1. Nice recap of both sides. Which side is correct?
    The chart seems accurate so far and reflects activity that’s occurred. We’ve had the massive subprime resets up until recently w/the sprinkled in Alt-A. Coming soon to a theatre near you. Stock up on popcorn and watch the show. Alt-A and Option ARMs will be here in full force by year-end. It will be a nail-biting, edge-of-your-seat event.

  2. I think that the bears have it!!

  3. Found a great article that gives some up to date info on the foreclosures and REOs that gives insight on if there is an upcoming wave:

  4. Looks like there may be signs of truth to the “second wave”:

  5. Great post about the possibility that we are in the “eye of the storm” when it comes to defaults and foreclosures:

  6. It will definitely be interesting to see the impact

  7. Looks like Yahoo Finance finally caught up to this story:

  8. I think people should focus more on the real estate motto of "location location location" than national data which incorporates data that is irrelevant to the local situation at hand. Each city is different with regards to "the market" and with in each of those city's, the local neighborhoods flucuate with regards to "the market". I don't think we have seen bottom quite yet. But does that mean that it is not a good time to buy? I don't think so. There are some great deals out there currently.You just have to find what works for you and situation. If you don't get into the market now its not a mistake though. You just have to hold out for what your gut feels is a great deal.

  9. Interesting article that is related to the info in this post:

  10. FATROB thanks for the post.

    I do agree with you that each location is different and each has its own market especially near the coastlines. But saying there are great deals out there could be deceiving in that you are basing it being a great deal on prices that were/are a fantasy now… Prices that would never have happened without the free money being thrown around…The extent to which will never happen again… actually never is kind of a strong word.. how about at least until everyone forgets about the dire consequences that have resulted.

    Basically my thoughts are that the resets do pose a risk of another hit on housing prices that far outweighs the risk of missing a bottom in home prices at this time. And I would rather use any investment cash i have in the stock market where I can play both long and short side and click a mouse to get in and out.

  11. One question I would have is what kind of terms were people getting those option arm or whatever mortgages at? The long bond has gotten pushed a little, but 30 year type fixed mortgages are still pretty cheap. How much difference in payment is anticipated with reset? Last time around rates were much higher…I just refied an investment property with 0 points and paid about 800 dollars in fees to countrywide to refi at 5.125%. This wave definately won't be as destructive as 1st wave…

  12. @Peter
    True the cheap rates are definitely a bullish point, but can the FED keep the rates this low until 2012 when these resets finally drop off?

  13. Hi, Excellent post, some really useful foreclosure information here.


  14. As an update:

    Bloomberg cites Barclays Capital analysts. Here’s more:

    About 40 percent of borrowers with option ARMs are already delinquent, and “many” of the others will start missing payments before their obligations change, the Barclays mortgage- bond analysts wrote in a July 24 report. Recasts of securitized option ARMs will peak at about $6 billion a month in mid-2011 and include “volumes lower than feared” overall, they said.

    “The additional risk really will only be for borrowers who manage to stay current over the next couple of years and might default due to a payment shock,” the New York-based analysts including Sandeep Bordian and Jasraj Vaidya wrote.

    Whitney Tilson’s hedge fund, T2 Partners LLC, in a presentation dated July 3 said option ARM recasts may peak in the second half of 2011 at more than $16 billion a month, citing Credit Suisse Group data. While the lower number from Barclays analysts suggests an earlier end to the foreclosures contributing to record home-price declines, investors and some analysts including at Barclays and JPMorgan Chase & Co. have said the U.S. government’s effort to have more bad mortgages reworked will delay some defaults.

  15. The rich will just keep getting richer as they flip trustee sales like crazy


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