The Only Thing Worse Than '06 Mortgages: '07 Ones

Man, remember those mortgages made in 2006? That was some bad juju. Whooee. But if you thought those were bad, wait till you get a load of the mortgages made in 2007. As the graph shows, people are defaulting on them at an even higher rate than the ’06 ones. How could this be? By 2007 the bubble was popping and lenders could all see that they needed to stop giving making loans to underqualified borrowers, right? That was exactly the problem: “Mortgage originators who profited handsomely from the housing boom “realized the game was completely over” and pushed mortgages out the door,” reports WSJ.

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  1. floraposte says:

    Wouldn’t that suggest that it’ll be 2010 before things start leveling out, because that’s when the ARM rates on the 2007 mortgages blow up?

  2. shadax says:

    A lot of these will not have to wait until they adjust. The owners will simply walk away. Seriously, having no/low money down in a property that is 40% underwater with no signs of recovery is not something people will cling to.

  3. CaptRavis says:

    Oh, that reminds me it’s Friday, which bank is being closed today? Will it be small and not newsworthy like last week? or will it be a regional player….stay tuned.

  4. shoegazer says:

    @floraposte: Also, the writedowns in the past year or so would have taken all of the securitized volume into account – including the ’07 batch. Now, if the PRIME mortgagees from ’07-08 get into trouble… that’s a different story.

  5. RodAox says:

    Banks = Fail, US Economy = Fail, Detroit Car Manu = Fail.

    you give somebody enough rope and they will hang themselves, this is exactly what happened.

  6. chauncy that billups says:

    People are still doing this. I commented on this a few weeks ago, but there is still a Countrywide office in my building. I assume they are controlled by BOA, and the number of employees there has dwindled, but I overheard some woman on her cell phone complaining that a colleague had closed a bunch of loans that weren’t underwritten. Don’t know what that means or if it’s even possible, but it doesn’t sound good. 2008 could be even worse than ’07.

  7. Jevia says:

    Not terribly surprised. We bought a year ago. Although we had good income and enough saved to cover all closing costs, we were still considered “Alt-A” because of a very low down, but made sure we got a fixed rate. Despite the low down payment funds we had, our mortgage broker was trying to push us to buy $100,000 more than we planned, because our income/debt ratio said we could. Of course, what the income/debt report didn’t show was things like child care costs, transportation/food costs, family visit costs, etc.

    We held firm kept our mortgage payments within our comfortable budget and good thing we did. We’re doing ok, but tight due to a layoff caused me to take a small paycut, my husband hasn’t gotten a yearly raise and food/transportation costs have increased. Had we listened to the mortgage broker, we’d be in big trouble right now. sure the house is a little smaller than we would have liked, but a small house is better than no house.

  8. justbychance says:

    If history ends up repeating itself, the Fed should be driving interest rates to ~10% to reverse the falling dollar and supplement the already decreased value of property.

    Sure, it would cause hell throughout the rest of the world, but China didn’t care very much when it was send lead filled toys here by the boatload.

    USA…USA..sorry, it isn’t 4th of July anymore.

  9. pastabatman says:

    “As the graph shows, people are defaulting on them at an even higher rate than the ’06 ones. How could this be?”

    My guess? Home prices were even more retarded in ’07 then ’06, yet the people who bought in ’07 didn’t have “more money” going into the deal. They couldn’t, on average, considering that wages, corrected for inflation have gone DOWN since ’00. So the ‘same’ people were buying houses in ’07 as in ’06, BUT at the new jacked up ’07 price.

    The “Alt-A” coming to term in ’09/’10/’11 is what I find the most scary. It’s the kinda thing that could kick the economy in the nuts just as it’s trying to recover.

    Batten down the hatches!

  10. pastabatman says:

    Oh yeah, by the way, here’s another bucket of gasoline for your fire:

    [www.clusterstock.com]

  11. SBR249 says:

    @bilups: According to wikipedia:

    “In banking, underwriting is the detailed credit analysis preceding the granting of a loan, based on credit information furnished by the borrower, such as employment history, salary, and financial statements; publicly available information, such as the borrower’s credit history, which is detailed in a credit report; and the lender’s evaluation of the borrower’s credit needs and ability to pay.”

  12. ospreyguy says:

    @Jevia:

    I love you… This is what a sane person does. Too bad so many have lost it…

  13. synergy says:

    @shoegazer: There are people out there writing about how everyone thinks things are bad with subprime meltdown. Just wait until the prime meltdown. Some people do believe that’s next and, well, not good.

    I don’t know if that will happen, but if it does, head for the hills.

  14. Wormfather is Wormfather says:

    @Jevia: Futhermore, in two or three years you can take your equity and buy that bigger house with payments you can afford.

    People STARTER HOUSES ARE CALLED STARTER HOUSES FOR A REASON. It’s an opportunity to stop paying rent and build value in something. You dont have to go from renting to $750,000 house overnight, I know, I know, it’ll take some time but there’ll be no homleness and that’s a goodthing!

  15. chauncy that billups says:

    @SBR249: So basically, the remnants of Countrywide are STILL doing the same thing that caused this disaster in the first place. Closing mortgages for people who are not properly vetted.

  16. Tmoney02 says:

    @Wormfather is Wormfather: Now if only there were such things as starter homes these days. At least in areas where one can get a job.

  17. sirellyn says:

    Bubbles typically take about as much time time to inflate as they do to deflate. That being the case expect the housing bubble (and housing prices) to return to normal by 2012-2015.

    There’s an excellent video on bubbles here:
    [www.chrismartenson.com]

  18. sirellyn says:

    The housing bubble is likely to completely deflate by 2012-2015. If you want details check the link to the video below:

    [www.chrismartenson.com]

  19. sirellyn says:

    PS: I hate when comments don’t update when you post them. :(