Is There A Second Mortgage Disaster on the Horizon?

On CBS’s 60 minutes from this past weekend, Whitney Tilson who is an investment fund manager said we have a second mortgage disaster on the horizon due to the PayOption Arm (Negative Am loans where you have 4 payment choices and if you make the minimum payment your principle balance owed will increase) and Alt-A loans that are about to reset.  Just b/c a loan resets doesn’t mean that everyone who has one won’t be able to afford their mortgage.  I understand Whitney is viewed as an “expert” but it seems there are so many people coming out of the wood work now that we are in this mess with all types of predictions.  Where were you prior to this and why didn’t you make more noise?  No one knows what is going to happen but what I do know is that the government is trying to step in and stop some of this.  Only time will tell. 


They were talking about this on FoxNews last night and one of the contributors mentioned that Alt-A meant bad credit.  Little does she know that it was also for good credit score borrowers. 


What got us into this mess?  It was borrowers unable to afford their payments and going into foreclosure but everyone thinks lower rates are the solution.  Its not, stopping foreclosures is.  Believe me, I’m happy that rates are low b/c I can do refinances but that is all it has done.  It hasn’t spurred purchases.  I am sure most have heard of short sales.  Well there is also something called a short refinance.  A short refinance is basically finding out what the property is worth, making sure the borrower qualifies for a new loan at that value, and gives the borrower a new loan.  This saves the bank from the high costs associated with a foreclosure, prevents low ball offers, and prevents values in and around that neighborhood from dropping more.  So how is that fair to those who pay their bills on time and made the right decisions?  Its not and life isn’t fair but if they don’t do this your value will come down even more.  Everyone complains about this but you never hear complaints about people who don’t pay their taxes and settle for pennies on the dollar.  A Wall Street Journal Opinion Article this morning disagrees with me which is fine b/c this is just “my opinion article” and I have been wrong before.