This month alone, more than $50 billion in ARMs will reset, marking a record. Borrower’s that took out the teaser rate mortgages will see their monthly mortgage payments soar 35 percent or higher. The result will be, more homeowners struggling to make their mortgage payment, resulting in defaults and foreclosures. The million dollar question remains, how much more in losses can we withstand? And how in the world did it happen?
It is safe to say that there was a large amount sub prime loans being underwritten between the years of 2000 and 2006, with indication that there was an increase of poor quality loans beginning in the spring of 2005 and the poorest quality in the fall of 2006. It is then safe to say that the worse is yet to come.
There are reports that over the next 6 months that approximately 600,000 homeowners will find themselves in some stage of foreclosure, and at least half of them actually losing their home. Interestingly, some ” experts” will tell us that this is not a national problem, but centered around areas that have experienced high unemployment, low wages and stagnant wage growth. Detroit has been ranked as the number one city for delinquency risk.
The fact of the matter is that the entire nation has been affected by the sub-prime mortgage crisis, even in areas that are considered ” low risk” areas, where there is low unemployment, high paying jobs and solid job growth.
During the ” boom”, it is now apparent that mortgage fraud ran rampant and homes were highly heated. The liberal and exotic mortgage loan products were offered nationwide, encouraging borrower’s to overextend themselves to get into a ” bigger, better ” home.
Not surprisingly, as homeowners nationwide face foreclosure and thousands of employees have lost their jobs due to mortgage companies going out of business and or filing bankruptcy, some of the Mortgage Companies CEO’s seem unaffected in fact,
it was recently reported that Angelo Mozilo, the CEO of Countrywide Mortgage, the largest mortgage company in the country is under an informal investigation by the Securities and Exchange Commission, from a request from North Carolina’s state treasurer Richard Moore. Moore asked the SEC to investigate Mozilo’s stock sales, after he sold 130 million of his company’s stock during the first 6 months of this year. There e is indications that there may have been some insider trading going on. There is a loophole in the provision that makes insider trading illegal, with a 10b51 trading plan which allows the insider to proceed with transactions even if they have information about stock prices that are not available to the public. Mozilo has made approximately $295,73 million over the last 5 years, while Countrywide has eliminated approximately 20 percent of it’s workforce.
Several months ago, Countrywide faced a liquidity crisis because of rising default rates, and its survival was in some doubt until Bank of America invested $2 billion into the company. But it appears that Bank of America is having troubles of their own. They were expected to hold up better than their two major rivals, Citi and J.P Morgan, because they steered away from sub-prime borrowers
Countrywide and SEC did not have immediate comments on the report, however the agency has been reported to be examining whether executives are illegally trading on insider information and using a preset trading plan to avoid suspicion.
The SEC is not only investigating Mozilo and Countrywide, but rather is taking a long hard look at a dozen mortgage companies that can contributed to the sub prime mortgage crisis.
To be fair, not all cities are suffering from the sub prime mortgage crisis. Dallas Texas has avoided the boom and bust cycle, and they are on track to post the best returns on housing of any major US city during the next 2 years.