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Subprime Revelation: Early Payment Default-ers Just Don't Care

Thanks for everyone's comments. I've found it very helpful in refining my thoughts.

Subprime Revelation: Early Payment Default-ers Just Don't Care

Looking through WM doc's seems to show that credit cards is kind of a small aspect of the overall business. The extremely high ratio of people using their Option ARMs to negatively amortize would be the thing that worries me most glancing over. Hmm.... WM is now yielding 5.6% though. Interesting.

It's funny, I used to think that Option ARMs were kind of a red herring - just because you can negatively amortize doesn't mean you do. Looking at CFC and WM it seems, most people do. I guess I shouldn't be surprised, but I'm kind of shocked. I used to have one, but we certainly didn't use it that way.

Subprime Revelation: Early Payment Default-ers Just Don't Care

Thanks for these posts. In a lot of ways, this type of stuff just strengthens the theory I put forth in the first place. That a big part of what's happened in subprime has nothing to do with the strain of the borrower, but has everything to do with the direction of the market. Excess can work in many ways and I'm sure in this case it has. Thanks for the information.

Subprime Revelation: Early Payment Default-ers Just Don't Care

I've never heard of anyone financing $500k (or whatever) for a $400k house.

Subprime Revelation: Early Payment Default-ers Just Don't Care

Okay a couple of things.

1) I'm sure my case is overstated. The root cause is obviously lending standards and the EPDs are the symptom, but some part of this also seems to reek a bit of people hoping to cash in a lottery ticket. The owners of subprime borrowers are not just immigrants and I wonder if you and I showed up looking for a no-doc loan for no down payment what kind of loan we'd get. Plus, when even the shoe shine boy knows he should buy a house, did he? The problem seems to be is that he was allowed to.

2) Bankruptcies: Great data - exactly what I'm looking for, except for one thing. Bankruptcies took a huge nose dive in 2006 because of the new bankruptcy laws that went into effect in 2005, because of the spike to file before Oct 2005. Over a million filings would actually be a normal number with no root causes other than a reversion to the mean, even north of 1.5 million filings would too. papers.ssrn.com/sol3/p...

3) The primary point of this post is what exactly does the mess mean? There is a theory that this is the coming collapse of the consumer and the economy and it will run straight into Alt-A and all ARM mortgages, so everyone should stuff their money in Europe or something (which has it's own real estate bubble, but who cares about that!). My main point is, as a canary in the coal mine, it's looking more red herring to me, because EPDs are not resets. If this is going to hit all ARMs and people higher up the tree, this should start showing up elsewhere. The federal funds rate change was mostly complete a year ago now. If this is all the start of a disaster, it seems to me there should be more signs of strain. I'm still open and looking for all data which would show it.

4) Rightfully, the lenders are getting slammed. I'm sure you and I can agree on that.

5) If the economy turns, I do believe this can turn into a disaster. But as a foregone conclusion I don't agree and it's an important question, because sometimes it's opportunity that's really staring at you in the face.