The Eye of the Housing Storm

This chart shows you it isn’t over yet:

These helped frame where we are in the mortgage crisis, which has been the main shark in the water over the past couple of years. You should know where that shark is and whether or not it is hungry…

Clearly, it is not yet safe to get back in the water: Years 2010 and 2011 face big resets in so-called Alt-A and Option ARM loans. What this means is more write-downs and more losses for banks and others who hold these mortgages.

The bounce in home building stocks looks ridiculous in light of what they have to look forward to. The T2 duo actually recommended shorting the home building stocks through the iShares Dow Jones U.S. Home Construction ETF (ITB)… I like the idea of shorting homebuilders. At the very least, I wouldn’t buy one.

By Chris Mayer

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1 Comment on The Eye of the Housing Storm

  1. This graph assumes a couple of things: 1) consumers will not or cannot refinance their adjustable mortgages into fixed interest mortgages. 2) Banks will not act on converting these adjustable mortgages into fixed interest mortgages. 3) Consumers will not be able to pay their new mortgage rates should their mortgage rates adjust up. 4) The Gov’t won’t find a way to bail out the industry once again should all 3 previous items occur.

    I am not saying that our system is perfect, but I believe that the banking industry has learned a small lesson over the past 3 years…especially the small banks. They are all working at a feverish pace right now to convert all of their high risk adjustable loan portfolios to fixed interest loans. I’m just not that scared at the moment, but maybe I should be.

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