A note from Short Fuse, reporting from Baltimore:
"Last night following the Ravens/Steelers game (ouch! What a game!), 60 Minutes covered what they called, 'The Second Mortgage Disaster on the Horizon'.
"That's right. Looks like the mainstream media is finally picking up on something we've been covering in these pages for over a year now: Alt-A and option ARMs.
"For those who are new to the game, Alt-A and option ARMs are two other types of exotic mortgages that have been lurking in the background, while the rest of the country worries about subprime alone.
"Although these loans were made to people with higher quality credit, these types of loans, specifically the option ARMs, still lured borrowers in with 'low teaser rates.' The problem with these rates, however, is right in the description...they are just a 'teaser'. Eventually, they reset. And a mortgage that was $800, can shoot up to $1,500...and many homeowners are ill-equipped to deal with this. In fact, one out of every ten homeowners in the United States right now is behind in their mortgage payment.
"Back in September of 2007, Strategic Short Report's Dan Amoss warned, 'The housing market will remain sluggish far longer than most expect. $800 billion of ARM resets can only add to the supply of distressed sellers in 2008. This will further depress an already sluggish housing market that's having enough trouble working through a huge supply overhang.'
"And we are nowhere near the end of the pain that will (and is) being felt from the rate resets and subsequent defaults. Whitney Tilson, the fund manager that 60 Minutes interviewed for this story gave viewers this uplifting tidbit:
"'We had the greatest asset bubble in history and now that bubble is bursting. The single biggest piece of the bubble is the U.S. mortgage market and we're probably about halfway through the unwinding and bursting of the bubble...It may seem like all the carnage out there, we must be almost finished. But there's still a lot of pain to come in terms of write-downs and losses that have yet to be recognized.'"
All we can tell you, dear reader, is get ready for the long haul. And do your best to stay ahead of the game. Not to toot our own horn, but your dedicated editors, both at The Daily Reckoning and at Agora Financial as a whole, have been diligently warning of this meltdown and the consequences it brings for the global economy for the past few years. And those who heeded this advice have been positioned to profit in a time when most investors are losing their shirts...and there is still time to join the ranks of this group of savvy investors.
Until tomorrow,
Bill Bonner
The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- Subprime Loans Caused the Initial Illness, Option ARMs will Cause the Relapse
- Underwater Homeowners Continue Making Mortgage Payments
- Subprime Meltdown Has About Run its Course
- Mortgage Crisis: Shark With an Appetite
- People Without Jobs Can’t Make Mortgage Payments
About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
