Friday, September 05, 2008

A quick "I told you so"

Back in June, I said this:

We all know about the sub-prime mortgage crises. I've talked about it on this blog and I'm borderline retarded, so I have no doubt that you've probably read something about it from someone who's smart. But have you read anything about the possibility of a prime mortgage crises? Because I haven't. And even though nobody is talking about it, I see no way that we're not headed in that direction.Think about it - everyone was taking advantage of the housing boom 5 years ago. People who normally couldn't afford a mortgage were getting approved with ARM's and we've already seen the fallout from that. But what about the people who were approved for prime mortgages who were buying outside their means? I'm talking about the young 30-something couples who combined make $100,000 to $200,000/year but were getting approved for $800,000 mortgage loans. Who is going to pay for their $3000/month mortgages? Is the government prepared for that kind of bailout? Because it seems to me that a bailout of the prime mortgages will be a lot more expensive than a bailout of the subprime. And if that happens, we're all bleeped.

Okay, so just now, I read this:

More than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June, as damage from the housing crisis worsened, the Mortgage Bankers Association said Friday. But the source of trouble in the mortgage market has shifted from subprime loans made to borrowers with poor credit to homeowners who had solid credit but took out exotic loans with ballooning monthly payments.

I hate to brag about something like this because it's horrible news, but HA! Who's the man? It's me! I'm the man. I'm not even a mortgage guy. Or a finance guy. I'm just some dumbass. But it's nice to be right for once. Maybe I should make a prediction that actually benefits us all.

Okay how about this: I see no way that gas prices won't continue to fall. Between a lessening demand and promises in Washington of increased production, I see no way that gas prices won't continue to fall.

/My good deed of the day


  1. Jane Says:

    What exactly is an exotic loan? I only ask because you are the expert here. :)

  2. Brian Says:

    Exotic loans in this case (referring to ballooning monthly payments) refer to when people bought a house they couldn't afford, let's say a $500,000 home. The reason they were able to afford it was because their lender gave them an exotic loan. Example: let's say their mortgage company set it up to where they only had to pay $1000/month or so for the first year. The borrower was assuming that a year later, they'd be able to afford a higher payment. So rather than having a fixed payment for the duration of the loan, their payment went up in year 2, say to $1500/month. Then in year 3, it went up again to $2000/month. And so on and so on.

    The problem with this though is that 1. on average, people aren't making more money today than they were 2 and 3 years ago. And 2. their houses didn't increase in value like they thought it would.

    So maybe they owed $500,000 at the start of the loan, but a year or two later, maybe they now owe $530,000 or even more.

    All these couples need is to lose one of their sources of income (and with the unemployment rate being the highest it's been in years, it's starting to happen right now), and you'll begin to see foreclosures on some pretty hefty notes.

    Translation: we're all fucked.

    Hip hip, hooray!

  3. Jane Says:

    Great news for a Friday afternoon! I think what I've learned today is that I need to go out and get an exotic loan.

    No? That's not it?

  4. Brian Says:

    That should be the first part of your plan. The second part should include taking the check that the bank gives you and rather than giving it to the seller of the house, you deposit it into an off-short savings account and then leave the country.

  5. Jane Says:

    That sounds completely reasonable.
    I'm on it.