Blog of Matt Gerchow

Welcome to my personal and business blog. Currently I am traveling the world and living The Four Hour Workweek. Live Anywhere, Escape 9-5 and Join the New Rich. The tips and techniques here are for those of you that are hungry just like I was before I left the United States for a full-time travel schedule. Enjoy!

Tuesday, July 15, 2008

The Next Real Estate Crisis

The Next Real Estate Crisis

By April, 2009, hundreds of thousands of option ARM mortgages will begin resetting, bringing on a fresh wave of foreclosures

Summary of article from Business Week July 15, 2008

It's starting to happen all over again. Right after the first wave of Foreclosures has hit a now secondary wave of foreclosures is beginning to heat up.

Adjustable rate mortgages are starting to reset. Reset means they will be at their full interest rate making it impossible for people to make their monthly payments.

The general thought when people agreed to these self-destructing loans was that they could resell the property before the arm was due. When properties were appreciating by 20%+ per year, this made sense. Now-a-days, when people are lucky if properties appreciate, period, buyers are not willing to pay an inflated rate for properties, just so the seller can get out without losing money.

Many people are saying that they didn't quite understand the complicated loans when they signed up for them. Many others are just walking away because they do not see the point in maintaining the increased payments where there is no equity to protect.

Much like the dot com boom of the late 90's, most folks just really didn't want to get left behind. The difference here is that was real money in the stock market and the current housing crisis involves money potentially owed.

About 13% of option ARMs that were issued in 2006 were delinquent by 60 days by the time they were 18 months old, according to Credit Suisse.

A lot of homeowners are just walking away. They really don't have much to lose if their property is foreclosed on.

For the complete article, click here. http://www.businessweek.com/lifestyle/content/jun2008/bw2008065_526168.htm?chan=investing_investing+index+page_real+estate

Matt Gerchow
www.real-estate-investing.com

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