barry

Housing Bubble and Real Estate Market Tracker

He means that he doesn't understand the ripple effects of tightening underwriting guidelines coupled with a 25% subprime foreclosure rate and triple-whammy payment shock. It's understandable that the Fed and the Street would prefer to see the subprime meltdown as "just a week", as one CMBS investment banker put it. But even the prime and alt-A sectors are not immune to:

> Elimination of first-time buyers who need 95%-100% financing to qualify for purchase money financing;

> buyers quickly selecting the foreclosure call option when their payments jump 35% when the interest-only period ends and their loans begin to amortize at higher market rates;

> renewed negative pressure on home prices caused by the two factors above; and

> more outcry from new home buyers as unsold inventory is moved into asset-backed securities at 60 cents on the dollar or builders can no longer afford to keep prices artificially high by subsidizing expensive upgrades.

It's foolish to think that the failure of 50 subprime lending shops since January of 2006 and the disappearance of perhaps $30B per month in mortgage originations is "small potatoes". Time will tell; specifically the next 40 months of ARM adjustments.