One of the things I like best about Patrick.net
As I read this quite well done, clinical autopsy of an ARM - in language even non-professionals can easily understand - what I already understood about ARM (adjustable-rate) mortgages, and their role in America's (not so much in most other countries) economic meltdown, meshed well with the facts and analysis in this piece. But, as with the best reporting, myfinance puts together a number of damning facts in such a way that almost required I pass it on as a heads-up for your future economic well-being.
Whether or not you have an ARM doesn't matter. What does is that so many others do, and that, of the many who do, 40% of them are in foreclosure, or on their way. As myfinance points out, 40% of 850,000 ARMs extant is one helluva lot of mortgages; over 1/3-of-a-million, in fact. That each one of these budget-busting money bombs puts more daylight between fantasy and reality economics - the actual value of the property today - every year, only makes "hanging in" until things "get better" a more and more foolish strategy as time goes on.
One doesn't even need to get into ongoing job-losses, and other complicating factors, to see exactly how far down the tracks this train is gonna wreck - not too damn far, especially when you consider that a majority of ARMs are up to reset (the interest rate) over the next 18 months. In other words, in addition to the h-u-g-e overhang of "shadow" inventory being withheld by the banks from the real estate market, you can add another half-million+ ARMs to that toxic stew. While a significant portion of those will be due to sheer financial inability, the majority will, in my opinion, be due to the future renters-to-be-for-life simply walking away, as they should, in the absence of lenders and government lifting a finger to help them; beginning with reappraising the properties at today's reality, as opposed to yesterday's fantasy, prices.
You should also know that the Tampa Bay area is #4 or #5 in the severity of its real estate market decline - about 33% off Mid-2005 values - and is one of 3 Florida hotbeds for ARMs; Miami-Dade and the Southwest counties (Ft. Myers, Naples, etc.) being the others. While the bulk of the damage will fall on the Golden State (soon to renamed the Bronze State), Las Vegas and Arizona, Florida will be the worst-hit in the East and South.
However, the real story here is this: Due to the banksters overweening greed, as well as their refusal to accept any responsibility for the grief and chaos they have caused, there is, to my mind, the possibility that their myopia extends to not fully comprehending the most logical outcome of their all-too-human, but, counterproductive behaviour, aka, unintended consequences.
In their mammon-crazed state of striving mightily (refusing to reappraise, freezing credit, etc.) to retain all of their ill-gotten gains, they may, in fact, be laying the groundwork for the eventual dissipation of the bedrock of trust (now wantonly betrayed) that is, when all is said and done, the ultimate moral underpinning and keystone of the 500-year Capitalism scam. If the "my word is my bond" maxim ever weakens to any great degree, we will have to rethink the basic premises for all human interaction.
If one adds to this the trenchant observation, by none other than Fritz Hollings
If so, the operative word for all of us will be, duck.
Forewarned is forearmed.
Note: for a look at Patrick himself, check out this 10-minute interview clip of him as he explains how his blog came about, whether to buy or rent, if Realtors ever tell you the truth and what he sees going forward.
Pat, feel free to post this to the forum. Hell, I might even try to climb back on there again some day.
Nigel Watson freethinker 727.493.1990 freesense@Gmail.com
"It is no measure of health to be well adjusted to a profoundly sick society." – Krishnamurti
-A good pun is its own reword.