A Second Mortgage Disaster On The Horizon?

By: CBSNews

Watch the Segment »

Giosmas says she bought about six properties in this last five-year period as investments. She says she put 20 percent down on each. Now they're all financed with option ARM loans.

Asked what she understood about the loans, Giosmas says, "Well, unfortunately, I didn't ask too many questions. I mean in the old days, I would shop around. But because of the frenzy, and I was so busy looking to buy other properties, I didn't really focus on shopping around for mortgage brokers."

"But if you're investing in real estate, you're buying multiple properties, you should be asking a lot of questions," Pelley remarks. "Why didn't you ask?"

"I was busy. I was really busy looking at property all the time, all day long," she replies.

She also acknowledges that she didn't read the paperwork. Now she's losing money on every property.

"You know that there are people watching this interview who are saying, 'You know, she was just foolish. She was greedy and foolish. She was buying small apartment buildings and wasn't paying enough attention to how they were financed,'" Pelley points out.

"My full-time job is I'm an acupuncturist. So, this was just a side thing," she says.

Giosmas says she was misled and she hopes to renegotiate her loans. But many other buyers have simply walked away from their properties. One Miami luxury building was a sellout, but when 60 Minutes visited, a quarter of the condos were in foreclosure.

Zalewski says one of those condos was originally purchased in October 2006 for $2.4 million. Now he says the asking price from the lender is $939,000.

And there are tough years to come because, just like the sub-primes, the Alt-A and option ARM mortgages were bundled into Wall Street securities and sold to investors.

Sean Egan, who runs a credit rating firm that analyzes corporate debt, says he expects 2009 to be miserable and 2010 also miserable and even worse.

Fortune Magazine cited Egan as one of six Wall Street pros who predicted the fall of the financial giants.

"This next wave of defaults, which everyone agrees is inevitably going to happen, how central is that to what happens to the rest of the economy?" Pelley asks.

"It's core. It's core, because housing is such an important part. We're not going to get the housing industry back on track until we clear out this garbage that's in there," Egan explains.

"That hasn't cleared out yet. We haven't seen the bottom," Pelley remarks.

"It's getting worse," Egan says. "There are some statistics from the National Association of Realtors, and they track the supply of housing units on the market. And that's grown from 2.2 million units about three years ago, up to 4.5 million units earlier this year. So you have the massive supply out there of units that need to be sold."

"What with the housing supply increasing that much, what does it mean?" Pelley asks.

"It means that this problem, the economic difficulties, are not going to be resolved in a short period of time. It's not gonna take six months, it's not gonna 12 months, we're looking at probably about three, four, five years, before this overhang, this supply overhang is worked through," Egan says.

209 Comments +

Add a Comment

See all 209 Comments


by 800FICO August 23, 2009 12:41 PM EDT: There is a new social network for those with an 800+ FICO or credit score. Check it out. www.800FICO.org; Reply to this comment


by suziee100 August 22, 2009 2:25 PM EDT: No one really knows what is happening in the market so its tricky to guess. There are tips at
<a href"http://100-mortgage.com"> mortgage </a> and a few other places.; Reply to this comment


by thismoment3746 June 7, 2009 1:33 PM EDT: If you'd like to learn more about getting into the trashout/cleanout business. You need to learn from the leaders in this industry. Please check out www.cashforcleanouts.com for more details.; Reply to this comment


by yelowdog March 15, 2009 10:35 PM EDT: Why hasn't this topic been more "Main Stream"? If this article is accurate and I believe it is, why hasn't there been more about it in the news?

Have the governments and news people been quite about this in fear of creating an even worse case of depression, deflation and financial collapse? I suppose I have answered my own question.; Reply to this comment


by conservativeandproud February 27, 2009 3:19 AM EST: When are dems/liberals/progressives (or any other candy-coating for socialists/fascists)
going to admit that it was their coercing of banks to make the loans to people that couldn't afford them that started this travesty. But you can all smile, because Jimmy Carter finally gets to live his second term through the "almighty" Obama.
Thanh God for the internet, talk radio and FOXNEWS to counteract the drivel spewed by ABC,CBS,ABC and CNN.; Reply to this comment


by lby54229 December 17, 2008 4:25 PM EST: I''m just wondering what''s going to happen? I know no one knows for sure.... Is there talk about not upping these rates for the Alt-A and ARMS buyers? That would be the sensible way to handle it. Yeah buyers got greedy and irresponsible but banks approved them and those loans should have never been allowed. So instead of bailing out the banks any more, can the banks just not up the interest?

I''m getting a headache worrying about what''s to come.... What''s going to happen to my family, my neighbors, my clients, my home''s value, my neighborhood? So many people are going to get hurt and there''s no way out.; Reply to this comment


by camom22 December 17, 2008 3:20 PM EST: Thank you Dasmon88! I agree. My husband makes decent money, just under $100k per year. We''d been watching as several of our friends who made far less went out and purchased these 600k homes. Logic told us that we could never afford a $600k home, it just didn''t make sense. We saw this coming a mile away as well. And so we''ve been waiting, waiting for homes to drop back to their actual values. We have perfect credit and a little extra in the bank so hopefully we''ll be able to get a nice, modest home in a few years.

I''m a person of average intelligence with no financial knowledge. It''s greek to me. But even I knew that there was simply no way a family making less than 100k/yr could afford these outrageously priced homes. When did they expect to pay them off? What did they think would happen?

I blame greedy people more than I blame the banks. Sure, the banks were stupid for extending these risky loans but no one forced people at gun point into these crazy, stupid loans. I''m sure some folks did get lied to and they have my sympathies. But for the most part people were just being greedy and short sighted, and now they''re losing their homes and crying for the government to clean up the mess they helped cause, yet refuse to take responsibility for. It irks me to hear people gripe and moan because there are those of us who have been responsible and didn''t overextend ourselves. What happened to living within your means?; Reply to this comment


by gce65 December 17, 2008 6:53 AM EST: If you simply read the terms of most ARM-type mortgages, the language states that the mortgage holder MAY adjust the rate upwards after the initial teaser rate period. It does not say that they MUST adjust it upwards.
There''s no excuse for banks adjusting them upwards in the current market. That''s like lighting a cigarette while pumping gas: don''t be surpised when there''s a huge explosion and nobody comes running to help.; Reply to this comment


by gce65 December 17, 2008 6:43 AM EST: Banks s-c-r-e-w-e-d us before in the first mortgage meltdown, they''ll do it again this time too. They''ve learned that profit is now privatized and loss is nationalized, so why would they change?; Reply to this comment


by dasman88 December 17, 2008 5:17 AM EST: The ney sayers and folks who are griping about this being "fear mongering" are having some trouble smelling the coffee...

When folks who are getting turned down for cell phones, can go out and buy a $500,000 homes... it is an actuarial fact that most of them are going to default on their loans.

When folks buy homes, that they can JUST afford, at teaser rates, and now they have lost income and their homes have dropped in value by 25%... it''s game over.

On average... in 2005 thru 2007, there was a NEGATIVE savings rate in the U.S.

All the armchair genius aside... you can''t defeat the math here. People who paid attention and did the simple math... they (we) have been talking about this since early 2005. Where the hell were the rest of you?; Reply to this comment