Mortgage meltdown’s nightmare scenario

Quite a headline ain’t it? Don’t blame me, blame MSNBC: Mortgage meltdown’s nightmare scenario.

Some 2 million homeowners hold $600 billion of subprime adjustable-rate mortgage loans, known as ARMs, that are due to reset at higher amounts during the next eight months. Subprime loans are those made to people with poor credit. Not all these mortgages are in trouble, but homeowners who default or fall behind on payments could cause an economic shock of a type never seen before.

Some of the nation’s leading economic minds lay out a scenario that is frightening. Not only would the next wave of the mortgage crisis force people out of their homes, it might also spiral throughout the economy.

The already severe housing slump would be exacerbated by even more empty homes on the market, causing prices to plunge by up to 40 percent in once-hot real estate spots such as California, Nevada and Florida. Builders like Chicago’s Neumann Homes, which filed for bankruptcy protection this month, could go under. The top 10 global banks, which repackage loans into exotic securities such as collateralized debt obligations, or CDOs, could suffer far greater write-offs than the $75 billion already taken this year.

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Well, junk mortgages include more than subprime. There's Alt-A, which is no better than subprime junk. Then there's all the stuff held by GSEs. Before comparing size of subprime to equity, remember that the total residental RE value make up about 50% of US household net worth, while Equities make up the other 50%. Add to that RE is a lot higher leveraged than stocks.


Thank god we have the Olympics that will save us from all of this mayhem…


Looks like the ABCP article is freely available here.Unfortunately it just covers the intriduction and the beginning of chapter 1. There are 10 chapters in total.

the pope

Looks like the ABCP article is freely available here.(Thanks Google!)

the pope

Richard: Arg. You're right – the first time I searched for the article it showed up fine, now for some reason they want you to pay 5 bux to read it. Phaw.


I am in total disbelief,usual suspect and RE pumper Jock Finlayson," says:"Whither B.C.?An economic boom tied to the construction sector can't go on forever; we need globally competitive export industriesPlease say it isn't so. Satv? Anybody????mohican said… "Unfortunately, subprime is not the problem – it is a symptom. The problem is a greed infested economy based on ever inflating asset values" True enough, however, the subprime meltdown is the symptom of the crash.If the bubble had not yet burst, and prices hadn't collapsed, and demand was still strong, the subprime borrowers would simply sell at a profit.This is a preview of things to come for Vancouver.Tick Tock,Tick Tock


Unfortunately, subprime is not the problem – it is a symptom. The problem is a greed infested economy based on ever inflating asset values.


"The ABCP story you posted from the Globe and Mail is available here."Ummm… doesn't look like it..

the pope

Please post links instead of the entire article. The ABCP story you posted from the Globe and Mail is available here.


let the bloodbath begin!


The problem is that subprime is just a trigger. It's the bullet your head needs to worry about when there's a gun pointed at you.The subprime meltdown will cause ALL real estate in affected areas to drop drastically which is a lot more money than 1.4% of the global equity market.


Subprime fact of the dayfrom Marginal Revolution by Tyler Cowen The entire market in subprime debt is just 1.4% of the size of global equity markets. Or, to put it another way, a 1.4% downward fluctuation in stocks erases the same amount of value as if all subprime-backed bonds were collectively marked to $0.Here is the link.