Mortgage Crisis Far from Over… Second Wave Bigger than First

60 Minutes Scott Pelley reports on the mortgage crisis that’s far from over, with a second wave of expected defaults on the way that could deepen the bottom of the U.S. recession. In the early summer of 2007 it became apparent to my mortgage partners and I what was to come.  At the time, the media, real estate professionals and the mortgage industry were still touting buy, buy, buy!!  Word on the street was that any dip would be followed by a return to higher prices, and the market would go up, up, up.  I personally became disgusted with the unjustified hype, but being an optimist it was tough to spoil everyone’s good mood…

Still, I began spreading the often unpopular news to my contacts.

We were looking at simple math and market fundamentals. This is easy to follow: Approximately 15% of mortgages at the time were sub-prime, mostly written in 2005-2006 as 2-3 year ARMS.  And we were just about to see the first wave of defaults on these loans as adjustments were about to start hitting in the Fall of 2007. But here’s the kicker that virtually no one (until recently), ever acknowledged: Approximately 35% of mortgages in the US at the time were “Alt-A” loans, written mostly between 2003-2005 as 5 year ARMs. This is the “second wave” is what 60 Minutes reports on in the video above.  They have some great data on what to expect going forward.

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