The typical OptionARM customer was qualified on the initial rate on the minimum payment, which was usually 2%, interest-only.

For a typical $500,000 California or Florida home, this resulted in a monthly payment requirement of roughly $850 (2% of $500,000 is $833 a month.)

The "real rate", however, on the loan was typically around 6 or 7%, and the rest of the principal and interest was "capitalized". If the amortizing rate was 6% on the note then the P&I for a "full payment" would be $2,982.83, resulting in about $2,100 a month in negative amortization.

If you try to "work these out" and manage to go "to the wall" on the note with a 40 year, 4% amortizing refinance, the note still comes up to $2,082.75 - more than a clean double of the original payment!

The "homeowner", however, can't afford the doubling of the payment. Further, the house isn't worth $500,000 any more - at best it is worth $300,000, which is a big part of why he stopped paying.

These notes were the worst sort of abuse and they're littering the landscape. I know people who have them here in Florida and have defaulted, and there are a scad load of them in California. My prediction originally was that half or more of them would wind up being worth recovery value at best, and this appears to be the case. Since these were nearly all written in the bubble areas, recovery will be fortunate to be 50% of face value.

How many of these are out there? Good question. I have seen numbers from $200 - $500 billion, all from reputable sources. Why don't we have an accurate number from the banks and Fed on these things?

In the "best case" this is another $50 billion in losses and about 25% of the homes purchased in bubble areas from 2003-2006. In the "worst case" this is well over another $100 billion in losses and perhaps as much as half of the homes purchased in those areas during the bubble years.

Either way you slice these losses have not been recognized or accounted for nor has their impact on home inventory and price.

unemployment has been going up since December of 2007 but debt goes down slowly. The amount of workers in the U.S. economy is seeing a sort of lost decade. But look at the financial obligations above. We are only back to 2005 levels. The bubble started much further back. Why is that? As we now know, a foreclosure takes a very long time while being laid off can happen in one day. Those mortgage payments keep coming in while the income from work is cut off. It isn’t like the mortgage suddenly adjusts to reflect the real economy. The obligation is still there. So is the auto payment. And the credit card bill and everything else. So debt that was once seen as a supplement to income is now a massive drain on your monthly balance sheet.

Just looking at this data I’m not convinced of this job less recovery. We are still losing jobs at a rate of 3 million per year. In fact, just to keep at a normal pace we need to be creating 150,000 jobs per month. Until we get there, the average American is going to feel this as the deep recession that it is.

KOSPI dziś -0,33%, nawet nie zareagował na wybryki związane z podskokiem po odgrzewanym kotlecie PKB. Jen drożeje, ropa i miedź tanieją. Nie ma popytu na surowce.