Robert Trudeau

Disquieting Mortgage Trends in JP Morgan, Wachovia Results - Housing Tracker

Chris, the losses to the government on non-performing loans will far exceed the UFMIP revenue. Would you guarantee a loan on an asset that is falling in value? We are in unchartered water here.

Mortgage Resets: Subprime May Be Ending, Option ARMs Have Just Begun

No one knows what the extent of this crisis will be. One would have to accurately predict too many variables including: future home prices, interest rates, economic growth/decline, employment, government actions, etc.. What we can be in agreement about is that overall home prices will decline so that they are more in line with income and equivalent rent. While I have no idea how rapidly they will decline, I estimate that nationally home prices need to fall another 20%. However, there will be real estate markets throughout the U.S. where there the decline will be far less or even non-existent. The big question is who will be on the hook for the approximately 4 trillion dollar additional decline in value. My guess is that the Fed/U.S. government will own a heck of a lot of mortgages and homes, so that ultimately you and I will pay for this mess even though we played no part in its creation. The market understands the U.S. government will simply not allow our money center banks to fail, which explains their stock price movements this past week. I don't see how we can avoid much higher future interest rates and/or inflation as we borrow our way out, putting greater downward pressure on other asset classes such as equities and cash/dollars. I am not a doom and gloomer but don't see any way we can avoid at least a severe recession within the next year.