I have to agree with some of the other sentiments that all the mortgage is hype is getting kind of old (particularly in the area where I live). I have to go back to dh and I sitting around and talking about it for years, so I guess we are kind of bored by the topic. Though we realize this will have a pretty broad impact on the economy as a whole (& am a little frightened by that. you can't just ignore it...).

But all the same I read some interesting things yesterday.

1 - Countrywide says they could have never seen this coming. ???????? Countrywide has only 30% of its loans as "traditional fixed rate mortgages." Are they serious? If they couldn't see this coming than they have serious issues. What they couldn't see coming was that they would be the ones left holding the bag.

2 - I saw some very interesting in-depth article that was explaining why Europe was so impacted by all this. I skimmed through it and didn't really figure out the whole Europe part but it left me thinking how crazy our world has become that the idiots in California can so horribly effect the economy in Europe. I feel the need to study global events more.

In the same article they were talking a little about the subprime events and was reading that so many of these loans were defaulting in the first through 3rd months that whoever was buying these mortgages stopped buying them. First, put a 3-month waiting period (to weed out the obvious defaults) and then eventually stopped buying. So this is how places like Countrywide, who intended to pass the buck, got left holding the bag. Common sense - all of it - but I didn't realize so many of these loans were defaulting in the first 3 months. WOW!!!! The mortgage companies were lucky to pass off most of the ARMs. Those will reset and start defaulting as well (most of them. I don't know anyone who has an ARM and has a plan other than to refinance or move - which both look unlikely lately). I also hardly know anyone that doesn't have an ARM, out here.

3 - I had read that this october around $4 billion in ARMs are going to reset - the most ARMs to reset ever in history.

I thought this was a very scary statistic and wasn't holding my breath on the economy going into much of a recovery mode in the near future. Feels like the beginning of a long slide if you ask me.

But I did read yesterday that most of the subprime loans and ARMs were taken out in 2004 & 2005. Makes sense as that was when property values were at a heightened frenzy out here. Which means 2009-2010 are going to be ugly years for the most common 5-year ARMs, as all of those reset.

I am reading predictions that the market won't bottom out until 2012, and frankly that makes sense. I've been reading the paper for months wondering what the hell they are smoking in press land, oh yeah this is just a little dip. I am thinking, um, hardly any ARMs have reset yet - I think it is going to get much worse. & it seems like it will have a snowball effect - more reset ARMS - unable to sell - more foreclosures - dropping home values... I just didn't really have any idea when or what the time frame was. I think I have a better idea. From now until 2012 or so is going to be REALLY ugly most likely.

I mentioned before that this area was particularly hit by the dot com bust as we were living in Silicon Valley at the time and that is where most of it occured. Pretty much everyone we know lost a job in the 2001 - 2004 era. I mean it is about how it felt. Everyone we know was affected. I am not sure dh would have agreed to stay home but his high-tech employer made the choice for him. & with the stocks since then everyone is so cautious - what goes up must come down...

It is more of the same here. It will affect here more than almost anywhere else. I am not sure why the same people can look at the dot com bust and realize there was some insane bubble (in hindsight) and not realize that it is just that with housing too - an insane bubble.

Yeah, what a shock!

It was probably a lot harder to see though because housing had already appreciated 1000% in the prior 20 years in the area. But I think the whole ARM thing made it terribly obvious that people were buying more than they could afford. People have been buying homes with 50%-75% of their income out here for decades. IT's a way of life. But when you do that with an uncertain payment like an ARM? You can pretty much figure out what is going to happen. You don't have a lot of wiggle room when you are already tying up most of your income in your mortgage. So the writing on the wall was rather obvious as a whole.

In Sacramento we were actually looking at buying investment property in 2005. I remember the realtor we were working with handed us some pamphlet with a graph. Since obviously the realtor wanted us to buy I think it was s'posed to be a sales tool. But it showed a graph of the home purchase cycle over the last few decades or something and it was up/down/up/down in a nice little pretty curve and skyrocketed off the chart from the last down cycle (90s) well into 2005. Off the charts! All I can imagine is realtors were handing this out as look - you have to buy - the graph is going off the charts! One look at that and it freaked me out. We decided right away it made little sense to buy. For Sacramento homes had never appreciated like that, and though I knew that with tele-commuting and Bay Area transplants Sacramento could have a long way to go, it just made little financial sense to buy property in 2005.

I think about 2 months later the market tanked.

I also found some charts online about San Diego but the same can apply here. Housing prices had grown on average from 5-6 times household income (more the norm in recent years since it is a pricey area) to something like the average home price was 12 times the average household income in 2005.

Does it really take rocket science to figure out that can't be sustained over the long-term?

I still keep going back to that 0-3 month default thing though. The lenders were getting so out of control that they were giving these loans to people who didn't have enough cash to make the first payment. Just... Wow...