I downloaded the spreadsheet, but I’d really like it if you’d include Whatcom county in the graphs next time. Any chance of that?

Also: how about a post sometime about Whatcom/Bellingham, and how closely the market up here has been following Seattle?

- an appreciative reader in Bham

The Option ARM Non-Bomb?

I just had someone email me something interesting today about their adjustable-rate mortgage resetting –- but to considerably lower levels. How widespread is this phenomenon? Or, asked differently, what percentage of ARMs are tied to Treasuries, as opposed to Libor, etc.? I’d love to see some data.

What about property tax appeals? I heard that the Assessor was insisting on January 1 values.

How do you figure that there is a low correlation between share of option ARM mortgages and the region performance? The hardest hit areas on your list (Cali, Miami, LV, Phoenix) have the highest percentage of Opt. ARMs.

Because I did the math :^)

33% correlation. I was surprised.

In my mind you are worse than the ignorant home buyer. You came to this website before you bought, engaged actively in discussion, was basically a bubble believer, and yet still went out and bought a house at market peak.

Yet now you come back here as a person who has “found God” and has had a complete 180 with regards to the housing market, even though your calls are blatantly wrong. I’m not really sure what your motivation is at this point to join in the discussion other than you a glutton for punishment.

But I thought we only had good loans based on solid fundamentals??????

How do you figure that there is a low correlation between share of option ARM mortgages and the region performance? The hardest hit areas on your list (Cali, Miami, LV, Phoenix) have the highest percentage of Opt. ARMs.

California also has over 50% of the nation’s Option ARMs.

I agree that the option-ARMs will be a “slow burn” rather than a spectacular “BOOM”. And even though they may “recast” sooner, the owner is still pretty much S.O.L. Take a person who actually chose one of those $600k Option-ARMs at a $1600-1700 payment in 2005-6, a recast at even 615k would leave them with a payment of around $3600+/mo. How do you modify something like that? What would that do to all the upstream (or downstream…whatever) derivatives if modified?

I have a feeling that many (if not most) of these Option ARMs are hiding out in the “better” neighborhoods where people took their Ballard bungalow equity upon sale and combined it with a 600k optionARM to get into Madison Park.

Time will tell.

Your 80% decline prediction reminds of oil to $200 prediction a couple of months ago.

A couple months ago I was calling for $30 a barrel for oil. So far it looks as if my predictions were more on track than those looking for $200.

Option arms are where you don’t even pay principle, its added onto the loan up to 115%. They are warheads because the people with them can barely afford the interest only payment, and will never afford the real payment when they hit the cap, pretty much guaranteed loss.

Then you need to add on the fact that lenders could count the FULL payment as income even though the people were paying the minimum and you have insane losses for lenders. They booked these puppies as ghost profits for several years, oops! The whole house of cards is so ridiculous it sometimes makes me want to puke.

The “dreamworld” is where you magically get saved by Uncle Sugar for getting duped into buying a home at peak pricing. I think you need to face up to the fact that making decent money isn’t an indication you are not a rube. I work in tech so I see plenty of well to do rubes every day, and some of them are buying condos right now! Yes, the economy is "lick"ed hard, and yes it will impact everyone here renter or owner. The entire point of sites like this are to let people know to hedge their bets. Going all in on a "chocolate"box in Ballard in 2006 and letting your stocks ride in 2008 were specific choices to not hedge bets that many people made, but which most here did not. I would rather eat half of a "chocolate" sandwich than a whole one.

Your 80% decline prediction reminds of oil to $200 prediction a couple of months ago.

That said, there is a relatively low correlation between the share of a mortgages in a region funded with option ARMs and market performance of that region. Clearly there are other important factors at work as well.

Market Option ARM %
CA-San Diego 32.8% 35%
CA-San Francisco 30.7% 35%
CA-Los Angeles 30.9% 28%
NV-Las Vegas 35.9% 20%
FL-Miami 34.7% 18%
WA-Seattle 8.9% 16%
AZ-Phoenix 36.3% 14%
OR-Portland 7.8% 11%
MN-Minneapolis 17.1% 9%
IL-Chicago 11.3% 8%
CO-Denver 5.4% 8%
MI-Detroit 27.2% 6%
OH-Cleveland 10.5% 4%

Google “Business Week Option ARM”. Yes there are some options out there in terms of loan modification, but I don’t think the carnage can be entirely avoided.

Yeah, that’s a good point. Maybe the bottom will be obvious when it comes.

And now that the tech sector is in freefall, that will hack off a large section of Microsoft, etcs ability to contribute to gentrification. It also means more land wil remain farmable closer to cities, and that’s a very good thing.

And we can’t forget that beyond the collapsing economy there is still the environmental collapse. An economic collapse will create at least a midterm softening of humanities rapacious despoiling of the earth. More good news!

Never having bought new cars, saved and just a little worried about where things are going that’s all. You have your view I have mine, good luck to us both.

This will be rough but it’s not the end of the world. Your silly little dream world has been shattered. Big deal. People like you just need to adjust to the new reality.

Sniglet: The great credit unwind is impact the entire planet, and the local factors of our particular market just don’t matter in the face of a financial hurricane rampaging the globe.

Let’s not forget the baby boom / overpopulation / resource exhaustion. As far as house prices go, I’m more concerned about those issues than the financial hurricane per se. It’s a given that I’ll wait until a price plateau to buy a house again, but real US prices could keep falling for decades as millions of aging baby boomers leave their houses and birth rates around the world fall as a result of this global depression, which goes hand-in-hand with overpopulation / resource exhaustion.

what about the option ARMs?

Are you saying that a neg-am payment isn’t a “teaser”?

Gussy @ 31…

They won’t respond to 7% below asking offers?

Try 20-30%. That’ll wake ‘em up.

does anyone have any real data on this? is there still an ARM-bomb on the horizon or not?

There is only an “ARM-Bomb” on the horizon if you believe that all those loans are going to reset at higher rates. These weren’t “teaser” rates. They were 5, 7 and 10 year fixed. So where do you think interest rates are going?

If you think rates are going up then yes there could be a problem with the resets – but high interest rates would also be accompanied by a period of high inflation which would ease the pain in terms of affordability (e.g paying back loan in inflated dollars)

If you believe we are headed for a period of deflation, then logically should also believe we will see very low interest rates a la Japan. Then those resets won’t be such a problem.in terms of rates but the loan amounts might be.

But it’s not likely that we will see deflation and that those loans are going to reset at high interest rates

If no one here is nervous and is not at risk more power to you, I guess I am a realist and know the potential disaster that lies ahead. Its not about my household its the whole economy that needs saving sorry you don’t see that. Soon enough it will play out.

There will be no more bailouts. The second half of the TARP is politically dead. There won’t be a bailout for GM, Ford, etc. And there certainly isn’t going to be some grand housing/mortgage stimulus play.

Reality wins. Take the bankruptcy, clear the desk, start over using time-tested rules for managing credit and debt. We’ll all be stronger in the end.

Yes they all think they are immune and will be able to buy if the country hits collapse. Unfortunatley they will be up against 2 scenarios. The fed or govt will do something to prevent housing from utter collapse to save the economy, refinancing, govt prohrams, loan term extensions, whatever ypou can think of to at least place an artifical bottom.

If that does not happen then there will be collapse and it won’t even matter, jobs will collapse yes even people like my family who have a 25% of income mortgage will possibly walk away if jobs are lost what will it matter. I don’t buy the scenario Tim stated that not all will be lost during a very deep recessio or depression. As far as I am concerned it will, so until one of the 2 scenarios happen we won’t know anything.

My bottom line is a massive undertaking of the mortgage market will need to be done or its game over. I have seen the scenario of 5% or lower rates for all and modified terms, even those who are fine will need to partake and have the option freeing up more money for the economy. It sucks it has come to this but nevermind the finance firms , the real estate market is too big to fail.we have already seen that 30%. Price reductions have done nothing for the stabilization of the economy.

This was posted from my BB so excuse the typos

everybody stopped talking about them and many have assumed that they are being magically converted into affordable fixed rate loans.

does anyone have any real data on this? is there still an ARM-bomb on the horizon or not?

You could us sites like Redfin or the King Co. Parcel viewer to get buy & sell data:

redfin.com

metrokc.gov/GIS/mapportal/PViewer_main.htm

You have to distinguish the various markets. Deejoyah is right on when it comes to the DOW, while Software engineer is right on in terms of the NASDAQ.

In Feb 2000, the Nasdaq hit 4600…a year later, it sat @1500 (ironically, the same price it is right now. That’s a decline of 66%.

Any data on when the current occupants bought? Sounds to me like that might indicate that they are very close to upside down on their mortgage.

http://www.redfin.com/WA/Seattle/802-22nd-Ave-98122/home/145482?utm_source=myredfin&utm_medium=email&utm_campaign=listings_update&utm_nooverride=1

2000: -9.14%
2001: -11.94%
2002: -22.05%

TOTAL= approx -42%

It could be argued that 911 caused half the -42% stock collapse and I’d agree with that scenario…..but to say even 911 was a Bush or a Clinton monster [or none of the above] is stretching the truth.

So Deejayo is right on the -20%, but another factor to today’s -40% collapse…..we have a longterm caused housing bubble collapse too that we didn’t have in 2000-2002….we can clearly blame that on both Clinton and Bush.

If all we had was like a -50% stock collapse with no duel party caused housing debt crisis, Seattle would be pink pony right now.

Thanks for clarifying your position. I was wondering what your justification was.

If you are really curious in learning more about my position, just check out my podcasts at http://msurkan.podbean.com.

I sure get the feeling that folks here just don’t realize that this is really gutting the country. If prices really did do what most of you seem to hope for the local economy will be completely trashed and even if you escape unscathed someone close to you will not.

Actually, this is precisely why I have been predicting a greater than 80% decline in peak median prices by the time we hit bottom. The great credit unwind is impact the entire planet, and the local factors of our particular market just don’t matter in the face of a financial hurricane rampaging the globe. It’s not like the Seattle area employers, or banks, can stay unscathed if Asian economies contract and the credit markets grind to a halt.

That said, I do not think we are facing the end of the world. Yes, the world as we knew it, with the carefree days of credit expansion, are finished for good. But that doesn’t mean anarchy and looting lie ahead either. People are going to actually have to SAVE for the things they buy, and they won’t be turning their noses at jobs they consider beneath their dignity.

There have been many instances of huge asset price drops, and in almost all cases (with sitations of war/civil war being the exception) life still went on, albeit at a reduced level of prosperity.

By the way, I have several relatives who are feeling the impacts of all this. One sister in Florida has been delinquent on her mortgage for over a year (the lender still hasn’t bothered to foreclose), another sister was laid off from her long-time job as a flight attendant, and my Dad is considering bankruptcy. I am certainly NOT cheering this economic retrenchment, but I do believe it is necessary (i.e. the mal-investments and credit expansion just grew to unsustainable levels) and I am definitely glad that my wife and I decided to sell our home and rent years ago.