Friday, April 27, 2007

Good Credit Client's Defaulting.

Now that sub-prime is heading toward the light, the focus shifts to the ominous Alt-A loans. You know, the grey matter between prime and sub-prime. Take a look at this chart.

As you can see defaults are rising sharply partly because rates are resetting and housing prices have become stagnate. Countrywide and WaMu are some heavy hitters in this group but all eyes will be on IndyMac to see whether they follow the path of big brother sub-prime. This free flowing money again is because of loose monetary policy that encouraged credit creation and the populations incessant fascination with all things real estate. Just look at the sharp rise of 30 day lates; this will parabolically explode because we are resetting at approximately $100 billion per month and housing is going the opposite way. Otherwise we are in a perfect time bomb with no remedy. All the adjustable rates are resetting at least 2% higher than their current rate and people can't make the payments. They need to refinance before their rates reset. If they make a late payment they become subprime for the next three years and the lowest rates in subprime for fixed mortgages is about .50-75% higher than prime. That is several hundred dollars a month more for most home owners.

No comments: