Mortgage Crisis Over? Please, It's Just Beginning
By Henry Blodget
Now that all those sub-prime loans have defaulted and folks who couldn't afford their houses have been evicted, the foreclosure crisis is over, right?
Wrong.
Wrong.
Why?
Because subprime loans aren't the only loans that began with a couple of years of fantastic teaser rates that made houses seem affordable. And over the next few years, all of those other loans will reset.
Now that interest rates are low, the folks who still have jobs and equity in their houses will refinance. Others, however, will be stuck paying higher rates--or they'll walk away from their houses.
Fund manager John Hussman of the Hussman Funds explains:
If there is any good news at present, it is that the capital infusions of late-2008 have temporarily stabilized the banking system, and that the U.S. economy is presently enjoying a brief and modest reprieve from the financial crisis.
This is largely the result of an ebbing in the rate of sub-prime mortgage resets, which reached their peak in mid-2008, with corresponding mortgage losses and foreclosures a few months later. Since this crisis began, the profile of mortgage resets has been well-correlated with subsequent foreclosures.
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