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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: carranza2 who wrote (37910)	8/5/2005 2:46:56 PM
From: russwinter	Respond to of 110194

Some bubble enthusiasts thus see an immediate threat from a 1980s-style ‘ARM squeeze,’ in which upward resets from ‘teaser’ rates will squeeze both home prices and discretionary income. However, the ARM market has changed dramatically in the past five years, shifting to ‘hybrid’ loans with longer fixed-rate periods. We estimate that it will be three years or more before the first interest rate reset on most hybrid ARMS, so rising rates won’t affect such borrowers for a while.> Berner needs to check the "small print" on these loans, that call for resets when neg amortization hits at 110-120% of the initial loan amount. Thinking one has "over three years" is fool's paradise. idorfman.com In addition, the vast majority of these loans are ripening, have been around a while, and have plenty of negative amortization already building. The clock started sometime ago. idorfman.com Finally the $1.4 trillion in ARMs generated "in 2004" represents "shot the wad". It will take vast amounts of new borrowing using these exotics to push, let alone sustain housing prices. Bottom line current normalizing rates makes that very problematic, and any shift in lending standards and practices Message 21576515 removes the pump all the more.