Season of the ARM reset

In autumn, the leaves will change colors and the subprime mortgage payments will spike


Andrew Leonard
September 12, 2007 5:11PM (UTC)

On Tuesday evening, one of the Wall Street Journal's lead stories recounted the stock market's 180 point rise, noting that investors were cheered by good news from McDonald's and GM, and hopes of a rate cut next week. The Financial Times was far glummer. The lead story featured the headline: "No quick end to turmoil, says Paulson," and quoted the Treasury Secretary, astoundingly, as saying the current credit crunch would take longer to resolve itself than either the Asian financial crisis of the '90s or the Latin debt debacle of the '80s. Another FT story speculated that huge job losses are yet to come for the mortgage sector.

Much closer to my own home, in Berkeley, Calif., on Monday, the East Bay Business Times' Jessica Saunders explored the various bills moving through Congress that could provide some relieve to home brokers and mortgage borrowers. (Thanks to The Housing Bubble Blog for the link.)

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One passage caught my eye.

There are roughly $300 billion of securitized subprime mortgages scheduled to reset in 2007, with $500 billion in total mortgage debt scheduled to reset during the year, according to a March report by investment bank Credit Suisse Group. A chart showing months to reset from January indicates peaks in the subprime sector from September through November. (Italics mine)

"We are just at the beginning. It hasn't even started to get bad yet," [said Michael Tacconi, a broker with Meridian Financial in San Ramon.]

The Financial Times has consistently been more bearish than the Wall Street Journal over the last year. This fall, as an avalanche of resetting subprime loans continues to fall, we'll get a good chance to decide if the pessimism is justified.

UPDATE: Calculated Risk delivers a truckload of detail about resets.


Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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