Monday, December 10, 2007


The mortgage mess is just starting . Subprime was just the tip of the iceberg. This article by a mortgage insider courtesy of Herb Greenberg is worth reading. The real blow up is going to occur in the Neg Am Pay Option ARM arena where essentially people with incomes as low as $80,000 were qualifying for million dollar loans. Most of these people have good credit but unfortunately no conventional loan program is going to save them as their mortgages reset. A whole lot of foreclosure are going to occur in the million dollar plus range especially in California where home prices are ridiculously high to start with.

Having spoken to a fair number of mortgage industry insiders, I happen to believe the assessment in the Greenberg article is pretty accurate. While the whole nation and world for that matter focuses on Subprime, there is an even larger problem lurking ahead and it appears the mainstream media is not paying attention. The Fed can continue lowering rates, but this is not going to fix the issues at hand. Bush, Paulson, Bernanke and Co. can come up with all the short term fixes they want but the inevitable is looming around the corner. We are going to face a drastic real estate correction and a recession is all but guaranteed. Keep in mind most economists and market pundits don't call it a recession until we are more than half way through one. I don't recall anyone calling the 2001 -2002 slow down a recession until the later parts of 2002.

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