Interesting Times

Another picture, this time forcasting the future:

This chart shows the coming problem with Option Arm loans.  This time next year, large numbers of option arm loans will be recast as fully amortized loans because they've exhausted the 125% cap on the loan.  This generally means a payment that is dramatically larger than the "option" payment that borrowers have been paying.

Larger payments for homeowners whose homes are already worth less than the loan amount spells another wave of foreclosures just as the current wave starts to decline.  

Foreclosures start about 10-11 months after a reset, so loans that are reset in April 2009 will go into default in September, and foreclosure in February.

 A large percentage of option arm loans were made in California, so we can expect to see a new wave of defaults and foreclosures in 2009 - 2010 in California.  And most likely this wave will follow the paths of earlier waves and hit the communities which have already been hit hard.

Don't let anyone tell you that the housing market has bottomed out!

Sometimes a picture really is worth a thousand words: