"Charting the mortgage crisis
Key to any impending US economic recovery will be how high the red line in the below chart is going to go.
That’s from a presentation by Whitney Tilson, managing partner at T2 Partners (H/T Clusterstock), who’s just written a book called “More Mortgage Meltdown.”
Clues to the answer to that question, we think, are probably in these charts, also contained in the presentation.
The good news is that the proportion of subprime and Option Arm loans — those most likely to go delinquent or foreclose according to Figure 4.2 — is much lower in 2007 than in 2006. In other words, though the cumulative default rate my be increasing more sharply than the 2006 batch in Figure 4.1, it doesn’t necessarily mean it will end up going higher — the worst of subprime may well be over.
The bad news, however, is that with the mortgage market currently in a Treasury-related turmoil, the ability of homeowners to refinance their mortgages at low rates is in danger. This is a big problem, especially since the delinquency rate seems to be spreading to safer mortgages, and the the struggle to find refinancing in the current market (everyone is after it, banks are overloaded with requests, etc.) means many people have yet to take advantage of the low interest rate environment.
The Fed’s lower rates simply aren’t being passed on — and with an Alt-A reset schedule that looks like the one below (chart from Tilson again) — they better figure out a way to do so very soon. The subprime crisis may be over, but the mortgage one is certainly not.
May 29 17:44