What is the New Crisis

A recent video by 60 Minutes brought light of the fact that there’s much more to the subprime mortgage crisis than we know about. A good portion of those having the 3/1 and 5/1 ARM mortgages will be eventually suffer a home foreclosure. There's about $300 billion worth of 5/1 ARM’s that will start resetting in mid 2009 at higher rates and last through at least 2011. These mortgages represent at least another $1.5 trillion . The number of actual foreclosures and the dollar figures just keep going up! Now there's a number of new crop of mortgage types that will start reset early in 2009; Option ARM’s and Alt A loans, many of which are subprime mortgages as well.

What are the New Numbers

We already have $1.5 trillion in bad loans everybody knows about and coupled with the plethora of Alt A and Options ARM’s, we have another $1.8 trillion headed our way starting pretty much any month now. That’s 180% more than we've seen so far! Sad to say we have a track record on this, based on patterns identified in the $1 trillion wave of subprime 3/1 ARM’s we've already worked through over the past 15 months. Based on this track record, experts predict that from 50%-70% of these loans will default as well. In fact, the percent of defaults could be even worse in this next wave because a significantly high percent of the Alt A and Option ARM’s are already in default - even before their rates start going up!

What's it all mean

What it means is:

• That "you ain't seen nothin yet"!
• We still have a whole lot of mortgages to work through as a society before we start to see the end of the total crisis.
• Borrowing money will become harder
• You may not be able to get you home refinanced.
• You will probably have to get a mortgage the old fashioned way - by telling the truth.

Bottom Line

We've just begun to see the bad news from the mortgage industry. If history continues to repeat itself though, and it usually does, things will eventually get better. Here's a few things you can do in the meantime:

• Be frugal, don't buy as much "stuff".
• It's a good time to teach your children about frugality.
• If you don't need to borrow money, put it off.
• Start saving your money.
• Use these time as a learning experience.
• Seek help early if you get into financial trouble.

The print and TV media have a tendency to blow things out of proportion. Just look at your own situation and don't overreact. Things generally get better.

See all about it at Your Mortgage Loan Modification

George