I've been waiting for the probing analysis of what that means. Yes, it will be bad - but presumably it will be different from subprime because the financial sector has learned how dangerous these types of loans can be. I certainly do not believe that they have learned their lesson - but presumably they will react differently to this new batch of financial detonations. Regardless of their cynical calculations, they should not be surprised this time.
This will be bad and they know it.
So, figuring out how bad this will be would seem to be a vital question. Who does it hit and how hard?
According to the WSJ - its going to beat hell out of the same boom markets: Florida and California.
CJR's Ryan Chittum observes:
So when these notes “reset” into normal ARMs where the principal has to like, you know, actually be paid off, these people are going to walk away in droves. Not only will the house be worth half what it was when the loan was signed, the loan itself will have increased in size during that time. It’s a recipe for destruction.That covers half of the transaction - the borrowers in the boom markets should brace for another round of walkaways and foreclosures. The other half would be who owns these loans?
WSJ puts the spotlight on one lender in particular.
San Francisco-based Wells Fargo holds a mountain of Pick-A-Pays, having acquired $115 billion of the loans in its purchase of teetering Wachovia Corp., which it agreed to buy late last year.
According to Wells, those loans are worth 93.2 billion - which is already a $20 billon hit - and they claim they're handling it.
Somehow that doesn't fill me with confidence.
And is it too much to expect a higher visibility for something that could catapult us into a capital D depression?
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