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Next Crash!? Does the Infamous Mortgage Reset Chart Matter?

|Includes: CTX-OLD, DHI, HD, IYR, LEN, LOW, SPY, SRS, URE, SPDR Homebuilders ETF (XHB)

We have all seen this chart by now, but just in case you haven’t its right here for your viewing pleasure.

Looking at this chart one would think to themselves “Well it look s like we have another wave of bad mortgages and foreclosures coming” … but why isn’t any of this coming up with the banks projections? Before I ask any more ridiculous questions lets break it down into the ol bull v. bear camps:

Bull

  1. The housing market is going to regain its losses by the time the resets come and all the millions of honest Joe flippers find their dreams of being “rich dad” come true. No desire to foreclose.
  2. The Mortgage Backed Securities make a positive return and the banks balance sheets are golden. Stocks gain on real earnings without rich uncle Ben.
  3. Option ARMs and Alt-A loans aren’t as bad as Sub Prime. These people will continue to pay their mortgage.
  4. A majority of the Option ARMs and Alt A loans have already been part of the massive amounts of defaults prior to their resets. (Is there a way to find out if this is true or not?)
  5. People in these loans will be able to refinance into low fixed rates without losing the home thanks to the low interest rate initiative of the FED.

Bear

  1. A possibility is banks won’t talk or plan for the risk of these time-bombs until its already exploded in everyone’s face… kinda sounds familiar.
  2. We are currently (Apr 2009) in the lull point of the resets where Sub Prime has tappered off hence the positive news around wall street with talk of the “End of the credit crisis.” But Alt As and Option ARMs are only starting.
  3. Based on the reaction time of the market with the Subprime wave (The top Oct 2007 for simplicity) The market should react negatively sometime in 2010 when its neck deep in this garbage and last almost to 2012.
  4. To retort the points in the Bull category houses will not regain the chunk of lost value and when the reset comes knocking people will not see the point of getting a new mortgage on a home that they owe more on no matter what the interest rate is. (As we have seen those granite countertops aren’t keeping people in)
  5. So how many banks do we have left?
  6. All of the “quality” paper that American Taxpayers have been forced to buy rots away and when the bailout tries to make round 2 the people of the United States actually speak up.
  7. The United States loses all credibility and our enormous debt blows up and the United States goes bust with no investors abroad… chaos .