Interesting story from Kirsten Grind over at the Puget Sound Business Journal: Experts see more subprime-loan pain ahead
Another big wave of subprime mortgages will see interest rates reset to a much higher rate over the next six months in the Seattle area, an indication that the Puget Sound region might still be facing further economic trouble.
The large number of resets mean it’s possible that foreclosure rates could continue to rise across the state as homeowners struggle to make higher payments. Banks, already weighed down by bad loans, could face an even more hefty load of troubled mortgages on their books, according to experts.
The result could be a damper on some sectors of Washington’s economy — including the housing market — which has so far fared better than many states in recent months.
About 12,600 subprime loans are scheduled to reset in the Seattle-Tacoma-Bellevue area over the next six months, or about 52 percent of the subprime loans left to reset in the area…
In addition, a large chunk of Alt-A loans — known for little or no income documentation — will start resetting with the possibility of higher rates in about a year, a trend that mortgage experts are watching warily because less is known about their loan performance.
Reading the entire article, I can’t help but see an eerie similarity to what has already happened down in California. The “experts” quoted in the article claim that since home prices are only down 5-10% here, loan resets won’t be as big of a deal as they have been in the Golden State. But when most people put 0-3% down, it seems to me that a 5-10% drop in prices is more than enough to send those people into foreclosure.
I don’t think the Seattle-area will see as many foreclosures as San Diego or Sacramento, but I do think we’ll have our fair share, which will probably be more than any point in Seattle history.
(Kirsten Grind, Puget Sound Business Journal, 08.22.2008)