12% default rate on mortgages?

[Chuck Bao]

Someone please tell me that I didn’t hear that correctly. Some guest analyst / stock market strategist / fund manager on CNBC just said that the default rate on mortgages was going to 12%.

I have no idea what it is now, but how on earth is that possible? If mortgages are typically for 15-20 years, that would mean that the default rate for new mortgages (say less than 5 years) would be what? 25-30%? God have mercy.

I assume that if someone has been paying their mortgage for 5 years, the declining market value would still be above the price paid 5 years ago and refinancing would be an option instead of default. Or, is the credit crunch that bad and property values fallen that far?

Maybe, he meant 12% of new mortgages.

Maybe that’s just worst-case scenario scare tactics to get the Bush administration to freeze ARM rates or the Fed to cut interest rates more.

Paulson is on now and he mentioned the danger of market failure. What?

That mortgage rate freeze on ARM plan seems more like a political move than actually solving the problem or stemming the risk of...ahem...market failure.

What the hell is going on?

[royalfan5]

That's a good question. Now that the parties over it may just take awhile to figure out how hung over we are going to be. I think it is at the point where we are realizing that we are way drunker than we thought we were. On the upside, ag commodities are still chugging along and are helping to the prop up the dollar with strong export demand. However, if China goes to a net importer of corn and beans look for the big three grain commodities to hit record highs. Which is good for me.

[boomersooner28]

All I know is that 190 mortgage companies have bitten the dust. 20% of American households were defaulting on ARM Mortgages about 6 months ago. Ouchie.

[Chuck Bao]

I have another question. Why are people still calling it sub-prime crisis? The heart of the issue is the property market and mortgage defaults. So, using the term sub-prime is more vague and less scary?

[1stTimeCaller]

I've never worked at a bank, balanced a check book nor worked in real estate but I called this 3 years ago.

Hopefully I can pick up a lake house on the cheap in the bext few years.

[royalfan5]

I have another question. Why are people still calling it sub-prime crisis? The heart of the issue is the property market and mortgage defaults. So, using the term sub-prime is more vague and less scary?

The come up with a better name would be asking a lot of our media.

[Chuck Bao]

It is interesting the role of the media in this crisis. They seem to want to report, but not too negatively affect market sentiment.

Maybe, that's why I'm so shocked by the numbers mentioned by BS28.

I had this discussion with a colleague today. He asked why my department never called a sell on the market.

We never do, actually. At best, we mention that there are short-term downside risks, but long-term investors should be prepared to buy on weakness.

The real reason, though, is that we would get no credit for it, just blame for further driving the market down and losing our clients' money.

[mikeelikee]

I've heard it's more like 5%. Guess we'll just have to wait and let it play out.

[soonerscuba]

So, most people are smart enough to know what they can afford? Those that aren't can rot.

[OCUDad]

So, most people are smart enough to know what they can afford? Those that aren't can rot.

Fair enough on the face of it, but "those who aren't" are causing financial problems even for "those who are."

[Chuck Bao]

Following the Asian economic crisis, non-performing loans at commercial banks in Thailand peaked at about 60% of total loans. Can you imagine the economic implications of total loans in a country going default at 60%?

That was largely due to huge investments and the need to import equipment and finance the imports by cheaper US dollar loans.

The forced devaluation of the baht required by the World Bank effectively bankrupted the corporate sector, the financial system and the country.

It's just ludicous today. The baht is strengthening back and the US has its high horse knocked out from under it with first the internet bubble and now the property bubble.

I don't want to point out the obvious, but our economic cycles are getting more pronounced rather than flattening out.

Strangely enough, free flow of global money is part of the problem, instead of the solution.

[NormanPride]

I am so damn confused right now. I try to follow this stuff, but I have no idea what's going on, and which rates to watch. badger and I are thinking about buying a house in the next 6-7 months, but really don't know when to lock in a rate.

[TheHumanAlphabet]

I have another question. Why are people still calling it sub-prime crisis? The heart of the issue is the property market and mortgage defaults. So, using the term sub-prime is more vague and less scary?

Hey Chuck!...I think they are using sub-prime, becasue these people would not have qualified for a tradition fixed mortgage. These are weird loans, interest only, pay what you wnat, etc. that have been invented in the last few years to churn real estate when people couldn't afford them. I don't feel sorry for the companies that are losing money or taking write-downs, as in my opinion, these are mortgages that should've never been written, and if anyone had a sense and were not being greedy, they would have never written those loans or they would have tried to get those type of loans...