Dec. 14, 2008

A Second Mortgage Disaster On The Horizon?

60 Minutes: New Wave Of Mortgage Rate Adjustments Could Force More Homeowners To Default

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    Scott Pelley reports on the mortgage crisis that's far from over, with a second wave of expected defaults on the way that could deepen the bottom of the U.S. recession.

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(CBS)  When it comes to bailouts of American business, Barney Frank and the Congress may be just getting started. Nearly two trillion tax dollars have been shoveled into the hole that Wall Street dug and people wonder where the bottom is.

As correspondent Scott Pelley reports, it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy. In the executive suites of Wall Street and Washington, you're beginning to hear alarm about a new wave of mortgages with strange names that are about to become all too familiar. If you thought sub-primes were insanely reckless wait until you hear what's coming.



One of the best guides to the danger ahead is Whitney Tilson. He's an investment fund manager who has made such a name for himself recently that investors, who manage about $10 billion, gathered to hear him last week. Tilson saw, a year ago, that sub-prime mortgages were just the start.

"We had the greatest asset bubble in history and now that bubble is bursting. The single biggest piece of the bubble is the U.S. mortgage market and we're probably about halfway through the unwinding and bursting of the bubble," Tilson explains. "It may seem like all the carnage out there, we must be almost finished. But there's still a lot of pain to come in terms of write-downs and losses that have yet to be recognized."

In 2007, Tilson teamed up with Amherst Securities, an investment firm that specializes in mortgages. Amherst had done some financial detective work, analyzing the millions of mortgages that were bundled into those mortgage-backed securities that Wall Street was peddling. It found that the sub-primes, loans to the least credit-worthy borrowers, were defaulting. But Amherst also ran the numbers on what were supposed to be higher quality mortgages.

"It was data we'd never seen before and that's what made us realize, 'Holy cow, things are gonna be much worse than anyone anticipates,'" Tilson says.

The trouble now is that the insanity didn't end with sub-primes. There were two other kinds of exotic mortgages that became popular, called "Alt-A" and "option ARM." The option ARMs, in particular, lured borrowers in with low initial interest rates - so-called teaser rates - sometimes as low as one percent. But after two, three or five years those rates "reset." They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500.

Now the Alt-A and option ARM loans made back in the heyday are starting to reset, causing the mortgage payments to go up and homeowners to default.

"The defaults right now are incredibly high. At unprecedented levels. And there’s no evidence that the default rate is tapering off. Those defaults almost inevitably are leading to foreclosures, and homes being auctioned, and home prices continuing to fall," Tilson explains.

"What you seem to be saying is that there is a very predictable time bomb effect here?" Pelley asks.

"Exactly. I mean, you can look back at what was written in '05 and '07. You can look at the reset dates. You can look at the current default rates, and it's really very clear and predictable what's gonna happen here," Tilson says.

Just look at a projection from the investment bank of Credit Suisse: there are the billions of dollars in sub-prime mortgages that reset last year and this year. But what hasn't hit yet are Alt-A and option ARM resets, when homeowners will pay higher interest rates in the next three years. We're at the beginning of a second wave.

"How big is the potential damage from the Alt As compared to what we just saw in the sub-primes?" Pelley asks.

"Well, the sub-prime is, was approaching $1 trillion, the Alt-A is about $1 trillion. And then you have option ARMs on top of that. That's probably another $500 billion to $600 billion on top of that," Tilson says.

Asked how many of these option ARMs he imagines are going to fail, Tilson says, "Well north of 50 percent. My gut would be 70 percent of these option ARMs will default."

"How do you know that?" Pelley asks.

"Well we know it based on current default rates. And this is before the reset. So people are defaulting even on the little three percent teaser interest-only rates they're being asked to pay today," Tilson says.

Continued



Produced by David Gelber and Joel Bach
© MMVIII, CBS Worldwide Inc. All Rights Reserved.
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Add a Comment See all 219 Comments
by donwyner December 14, 2008 8:02 PM PST
This is irresponsible reporting. You are interviewing people with a stake that you are not reporting. Creating panic is not something tht a responsible news organization like CBS should be doing.
Reply to this comment
by dungeecomm December 14, 2008 8:16 PM PST
I only wish this sort of reporting was done years ago instead of now ... maybe if some light had been shed on all these crazy mortgages years ago, this country would not be in the financial crisis they are in now. But it''s all water under the bridge; the question now is what do we do to get out of it ?

On a personal note, it''s nice to "know" that there are tougher times ahead before it gets better - I won''t be transferring my 401k into anything but low-risk funds for at least another year or so. Short-sighted, perhaps, but safer for sure. I don''t know if I could afford to lose another 20%.
Reply to this comment
by smartykat1 December 14, 2008 8:28 PM PST
This makes me sick! Congress is spending our money like its water. I can see if a both lose their jobs or a serious illness strikes there should be a safety net to help people not lose their homes. But simply because someone was crazy enough not to get a fixed rate or bought way above their means?!!. Not reading the papers your signing?? Whats next the government covering gambling wages in Vegas with our tax dollars? We didn''t buy a house till we saved enough to get a fixed rate and could afford the payments with one income. Its called using your head. This country is going broke and being bought up by China. Sad times.
Reply to this comment
by drrober December 14, 2008 8:36 PM PST
What I don''t understand is, why does everyone assume that the ARMs are going to reset at a higher rate? I have a HELOC that was at nearly 9% in 2006, that is now at less than 4%.

I also have a ''sub-prime'' mortgage (I bought my house as I was coming off 14 months of unpaid maternity leave), I did a 101% no-doc loan. I''m fine as long as I''m employed & have been paying extra on it. But my 1st mortgage is a 5/1 loan at 8.6%... I fully expect it to reset for less than that when the 5 yr fixed rate period is up. Perhaps I''m naive but I would think there are a lot of people like me who are waiting for the fixed period of their loan to end!
Reply to this comment
by thegov88 December 14, 2008 8:40 PM PST
Do 60 Minutes do even basic research on their "experts" before quoting someone???

NEW YORK (Reuters) - Hedge fund T2 Partners LLC on Monday for the first time was buying distressed U.S. mortgage securities on bets that losses on underlying loans will fall far short of expectations, founder Whitney Tilson said.

"For the first time in our 10-year history we are buying distressed debt, and we are selling equities to do it, Tilson said at the Reuters Investment Outlook Summit in New York.

From Forbes article Dec 8.

This completely contradicts what Tilson says in the interview where he is bullish on equities and very negative on the housing market.

Something very, very strange here.
Reply to this comment
by dimichelo December 14, 2008 8:42 PM PST
It appears to me that you need to dig a little deeper. ARM''s adjust based on a 1YR TBILL Index (.69)+ a margin of 2.00 to 5.00% Rates moving forward for these borrowers will be 2.75 to 5.75%.Historically low and affordable. Please check your sources. Your reports have a tremendous impact on the US housing market.
Reply to this comment
by drrober December 14, 2008 8:43 PM PST
What I don''t understand is, why does everyone assume that the ARMs are going to reset at a higher rate? I have a HELOC that was at nearly 9% in 2006, that is now at less than 4%.

I also have a ''sub-prime'' mortgage (I bought my house as I was coming off 14 months of unpaid maternity leave), I did a 101% no-doc loan. I''m fine as long as I''m employed & have been paying extra on it. But my 1st mortgage is a 5/1 loan at 8.6%... I fully expect it to reset for less than that when the 5 yr fixed rate period is up. Perhaps I''m naive but I would think there are a lot of people like me who are waiting for the fixed period of their loan to end!
Reply to this comment
by bjcone8559 December 14, 2008 8:45 PM PST
You got a problem with the financial collapse?

Send a thank you note to Ronnie Reagan, address, Hell.

Ronnie, you lying draft dodger.


--------------------------------------------------------------------------------

Posted by jbrown88881


AMEN!

Ronnie RayGun trickled down!
Reply to this comment
by ebkelly3 December 14, 2008 8:46 PM PST
This is an easy one: the bank''s "RESET" dates will just need to be canceled. Haven''t we paid them enough? Like trillions??? Enough, already.
Reply to this comment
by martin9p2 December 14, 2008 8:52 PM PST
This Tilson guy sounds like a doomsayer, and CBS News has fallen for it. I''m not qualified to say that everything is rosey, but I agree with the responses here that point out that mortgages will reset at historically low rates and that every reset won''t lead to foreclosure.
Reply to this comment
by oilfix December 14, 2008 8:59 PM PST
Makes you chuckle when these guys wake-up after
leaving the edge of the cliff. No mention of lay-offs,
and they will be massive. Wonder if we will ever
recover from this mess.
Reply to this comment
by stansloans December 14, 2008 9:01 PM PST
The story tonight was riht on the mone.

I was responsible for selling these loans to brokers accross the country and then who then sold them to the public. our bank then sold them off to bigger institutions like Bear Sterns and Countrywide who sold them to investors on wall st. I left in 07 when i saw the writting on the wall before they were seized by the FDIC. I am now helping the people that are in trouble by helping them keep from etting the shaft from their bank when they try to re structure their loan under the govt. mandated modification sugestions. I have heard some real horror stories from folks that went out of the fryin pan into the fire when the bank mosified the loan WITHOUT lowerin the interest rate!
Reply to this comment
by kmar20009 December 14, 2008 9:05 PM PST
It is true that in the "old" days, ARM loans were based on the treasury rate plus a margin of 2-5 percent. If you look at the new generation of magic ARM loans, the margin is sometimes as much as 9% above prime. Additionally they can now jump to the higher rates at the first change rather than being increased incrementally. A loan with a teaser rate of 2% in 2005 could now jump to 9%, even if the prime rate drops to zero. That would equate to an increase of more than $1500/month on a $300K loan. (and a $150K house... )
Reply to this comment
by downtowner97 December 14, 2008 9:19 PM PST
So you have a $300,000 mortgage on a house that is worth $275,000. Your payment is $1500, and a similar house down the street is up for rent at $750 a month.

The only question you have to ask yourself is "Do I really need credit?"
Reply to this comment
by zzy-izzy December 14, 2008 9:20 PM PST
Hope China is the one that has these loans maby they will come and get the crooks i HOPE
Reply to this comment
by zaniacloclo December 14, 2008 9:22 PM PST
As far as I am concern there are no experts on anything anymore.
Government leaders and Corporate leaders have failed America. No one really knows how long this is going to last or how bad is it going to get. The treasury can do a lot to alleviate the fear of these ARM resets. But Americans need jobs. As far as the Obama administration is concern they better lay out a vision for this country that will reward innovation, corporate and personal responsibility. Where are the creative minds in this country? We need them in Government.
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by zzy-izzy December 14, 2008 9:24 PM PST
downtowner97 i think it is time to move down the street and not worry about your credit build it back later
Reply to this comment
by westlanie December 14, 2008 9:34 PM PST
Wait a minute, the law of supply and demand dictates as the supply exceeds the demand, prices will fall and vice versa when supply lags demand. It would seem that as house sales fall, two things should happen in an orderly ecomomy; prices recede along with interest rates.

Sometimes this does not happen. Look at all those manufacturers who raised prices when oil prices spiked as an excuse to cover higher transportation prices (have they heard of hedging) recently, many manufacturers have raised prices again so that retail prices have been bumper up again. What''s with this?

Remember back one season when tropical storms drastically reduced the Sugar crop and the price of a pound of sugar doubled or tripled. I have been waiting 25+ years for the price of sugar to recede to a level prior to the crop damage.

Let''s face it, we live in a society that mandates greed.

America is strong because we as a people have always risen to the task at hand, this time we have a lot of housecleaning to take care of, in 3-5 years, we will look back on these times and reflect; we as a nation have risen to the task and are justifiably the greatest society in history.
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by mavand December 14, 2008 9:34 PM PST
What a hack job. Mr. Tilson clearly has a vested interest in discouraging investment in real estate and directing as much cash as possible into equities. Nice line at the end about how it''s a great time to buy stocks! If there is a second wave in the mortgage crisis, won''t there also be another mortgage-backed asset implosion on Wall Street? Furthermore, 60 Minutes only focused on Miami, the worst of the worst in the real estate market. Never mind that other real estate markets were barely touched by the bubble & burst, or that some that were are already on the rebound.
Reply to this comment
by mavand December 14, 2008 9:36 PM PST
What a hack job. Mr. Tilson clearly has a vested interest in discouraging investment in real estate and directing as much cash as possible into equities. Nice line at the end about how it''s a great time to buy stocks! If there is a second wave in the mortgage crisis, won''t there also be another mortgage-backed asset implosion on Wall Street? Furthermore, 60 Minutes only focused on Miami, the worst of the worst in the real estate market. Never mind that other real estate markets were barely touched by the bubble & burst, or that some that were are already on the rebound.
Reply to this comment
by itraveler99 December 14, 2008 9:39 PM PST
GREED; CORPORATE GREED,left unchecked. Time to look at those really responsible for this mess.

Amazing how they put Martha Stuart in jail for her little inside deal, but not one single exec responsible for these financial corps are even under investigation. And to make it worse, we are GIVING them our money to continue....

The stock market is a S-C-A-M!!!

I am getting out and NEVER getting back in.
Reply to this comment
by kandiamo December 14, 2008 9:45 PM PST
Don''t call it EXPOSE when you get the explanation you expected, then work to back up that story. Mortgage writers, with a nod from world bankers, aggressively pursued frugal people with/without equity to buy homes. Most buyers, asking all the right questions of lenders and realtors before any final decision, were swindled. The LENDER filled out papers falsifying income, NOT the buyer; THEY filed FHA forms claiming a wood frame in the city was a brick lake house to snag a bigger percentage of contracts. WE didn%u2019t choose subprime loans, THEY did. Identities were stolen from mortgage papers to buy multiple properties with info from a single contract; banks calling to verify personal info, were rerouted to paid accomplices with fake phone #s-inserted without buyer knowledge. This has been going on since 1978, and no one did anything to protect buyers in all that time. Stop calling us greedy, stupid, irresponsible, naive, and perhaps somehow less than YOU because you still have a house. Look past lending institutions and their oversight offices (foxes watching the henhouse) and you''ll get a frightening look at who and what caused the crash of the housing market. Buyers were set up as fall guys when the inevitable happened because there are no laws protecting the buyer, only the lender. But maybe you don%u2019t want to hear THAT part of the story because blaming buyers fills a TV hour when investigative journalism may take several episodes or lose a sponsor.
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by nothappyatall December 14, 2008 9:51 PM PST
"The option ARMs, in particular, lured borrowers in with low initial interest rates - so-called teaser rates - sometimes as low as one percent. But after two, three or five years those rates "reset." They went up."

Only an idiot would have signed for such a loan, but theres a good example of how the lenders screwed themselves up- let em fall.
Reply to this comment
by kjohnson913 December 14, 2008 10:04 PM PST
Not all Option ARMs are bad. I have a 5 year option ARM. If my loan were to adjust right now, my rate would lower by 1.5%. Bring it on I say, but I have to wait another year. Like anything, the quality of your loan is in the details. What is the margin your lender gets, what is the index your lender uses, etc... My personal situation and for most, as far as I know is that the rate adjusts based on the 1 year CMT, known as the Fed Funds 1 year constant maturity rate. This rate has fallen to just about .50 percent (12/12) and will probably fall further with the prime rate. I have saved thousands of dollars by choosing this loan and it would take several years of rising rates for me to lose what I saved. Please tell the whole story CBS. It''s not all bad out there!!!!
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by fuzzback-2009 December 14, 2008 10:08 PM PST
Watching HBO''s "House of Saddam" this evening; it struck me as ironic that in 2003, even as we began the destruction of Saddam Hussein''s regime, our financial industry was sowing the seeds of our own demise.
Reply to this comment
by helloall6 December 14, 2008 10:23 PM PST
I owe 142,000 on my condo and they are now selling for 110,000-80,000. I can''t rent it because my mortgage is 1200 and they are currently renting for 500-900. I am seriously considering to let it go. My biggest issue is that my mom is on the loan with me!!! Screwed city = population me
Reply to this comment
by drrober December 14, 2008 10:25 PM PST
What I don''t understand is, why does everyone assume that the ARMs are going to reset at a higher rate? I have a HELOC that was at nearly 9% in 2006, that is now at less than 4%.

I also have a ''sub-prime'' mortgage (I bought my house as I was coming off 14 months of unpaid maternity leave), I did a 101% no-doc loan. I''m fine as long as I''m employed & have been paying extra on it. But my 1st mortgage is a 5/1 loan at 8.6%... I fully expect it to reset for less than that when the 5 yr fixed rate period is up. Perhaps I''m naive but I would think there are a lot of people like me who are waiting for the fixed period of their loan to end!
Reply to this comment
by bailoutben December 14, 2008 10:27 PM PST
Rules for the mortgage "crisis":
1) Everybody pays THEIR OWN mortgage.
2) Those who can''t pay, or don''t feel like paying their own mortgage can rent.
3) Speculators who lent money to people in part 2) who can''t pay, or don''t feel like paying their mortgage are officially ''out of luck''. They lose.
4) NO MORE ******* BAILOUTS.
Reply to this comment
by incog-nito December 14, 2008 10:29 PM PST
I owe 142,000 on my condo and they are now selling for 110,000-80,000. I can''''t rent it because my mortgage is 1200 and they are currently renting for 500-900. I am seriously considering to let it go. My biggest issue is that my mom is on the loan with me!!! Screwed city = population me

Posted by helloall6 at 10:23 PM : Dec 14, 2008

Let it go and get a lease for 500-900 and save yourself a bunch money. Who cares about credit rating anyway. Renting is the way to go for next several years at least.
Reply to this comment
by vduhart December 14, 2008 10:32 PM PST
Even if your rate resets to lower one in which you could afford, it won''t matter much if the homeowner doesn''t have a job. There will be another series of job cuts as this recession deepens, and even more job losses will occur as the auto industry collapses.
Reply to this comment
by sivalleyguy December 14, 2008 10:45 PM PST
Mr. Pelley, you never uttered the word "speculators" but instead called them "investors."

Acquaintances of mine put down payments on several unbuilt condos in the sky in Miami because they were going up in value at incredible - literally beyond credulity - rates. They were speculating that prices would rise by the time the building was completed. This fueled more building which fueled more speculation which fueled more liar loans.

Stats say that 7% of all loans before 2001 were subprime paper. By 2005 than number was 20%. FauxNews is spewing propaganda that those subprime borrowers were minorities who couldn''t pay their own mortgage. I have observed far more small time speculators who lied about their income to buy several homes or condos in the hope of flipping.

Why don''t you do a story about this part of mortgage fraud?
Reply to this comment
by sivalleyguy December 14, 2008 10:50 PM PST
drrober....your rate is WAY out of whack too high unless you have really bad FICO score. Go talk to 3 lenders, including at least 1 major bank such as B of A or Wells Fargo who charge no points for refi.
Reply to this comment
by rjcarvalho December 14, 2008 10:59 PM PST
I keep hearing that one in ten mortgages are in trouble, yet the information is too vague. Who lent the subprime mortgages and where are they? Where are the massive number of displaced people? With our devastating storms and all the forclosures, one might think every bridge from California to Maine would be sheltering our displaced citizens!
Reply to this comment
by December 14, 2008 11:16 PM PST
Everyone seems to have the answer to the housing/mortgage melt down BUT no one is saying why. The answer lies in the over $1TRILLION put into the market place/banks/financial instructions but the pseudo war in Afghanistan and especially Iraq purport rated by Bush and Cheney with the real reason of oil and Israel. The money in the market had to go somewhere (banks, etc cannot sit on it because there is no PROFIT from holding cash) and they lend some 19/30 times of the holdings. The easiest place in high volume was the mortgage market to satisfy the American Dream ''everyone should have their own house!!! Of course, the market place took up the chance to make hoards of money from this scenario and greed and fast pace(you snooze you lose). On top to get buyers were incentives cars, furniture, vacation, credit cards and other loans got into the frenzy. A byproduct was the elite CEO''s and their executives, brokers, financiers were making millions upon millions and SUPER GREED set in. Well the bubble has burst and guess who has to look after the ''fat cats'' the little person at the bottom of the heap. The government is expected to save the the corporations who put us there in the first place. Ironic the shareholders and the hierarchy who should be footing the ''bill'' have disappeared into the woodwork.
Reply to this comment
by likenoone-2009 December 14, 2008 11:36 PM PST
I want too see the washington big wigs in the soup lines first
Reply to this comment
by mike02557 December 14, 2008 11:39 PM PST
This was a good news story. Smart people know that this "recession" will be deep and last 3 to 5 years. Knowing that the sub-prime problem will be followed with two more bumps, is good for planning purposes.

How many people have lost serious money in the stock market? How many bought more house then they could afford? How many people were willing to run up incredible credit card debt because they wanted it all and wanted it now?

Smart people will hunker down and cut back on their cell phone bills, cut down on cable, watch their spending and become more frugal. The goal is to become "debt-free". Anyone who has cash in the next two years will be able to take advantage of some great bargains, in both stocks and housing. We have not bottomed out. What I have found out in life is that most groups of people are wrong, so I look for people like Mr Tillson for the desenting opinion. Dr Ravi Batra predicted a recession/depression in his book, "The Great Depression of the 1990''s". I read it in 1197 and re-read it the other day. A lot of it is coming true.....
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by jimmy19551 December 15, 2008 12:17 AM PST
Excellent explaination for the viewers. They need to process this info and look to see how much exposure their investment portfolios have towards both residential and commercial real estate and take the appropriate steps to manage their risk before that next shoe drops.
No pity here for those that went for the brass ring and fell off the merry go round. If they had made a killing on their investments, would they have shared?
Reply to this comment
by incog-nito December 15, 2008 12:20 AM PST
Bush: Yes to a $700+ billion bailout to financial companies whose incompetence and downright fraud are directly responsible for the economic downturn.

No to a $14 billion bailout to automakers whose troubles are partly caused by their own incompetence, but also partly due to the economic downturn caused by the aforementioned financial companies.

Yes to saving financial companies who employ tens of thousands. No to saving manufacturing industries who employ hundreds of thousands, and whose auxillary industries employ millions.

Time to put things in a little perspective.
Reply to this comment
by bailoutben December 15, 2008 12:22 AM PST
No to the automakers, and rescind the bank bailout as well. It''s high time we let the free markets we so piously espouse for the rest of the world work.
Reply to this comment
by ptz1961 December 15, 2008 12:45 AM PST
Morley ("Living Large") knew where this was going, even if he didn''t predict the crash. We are in for some serious pain to come (I''m in Canada). Add collapse%u2019s of housing, construction, auto%u2019s, resources etc. The numbers are just for resets. Add the millions of newly unemployed & those numbers will be 2x +. Here our banking is regulated but we''re so closely linked we''ll follow the same path. Americans love to talk ''free enterprise'' & free markets. When the S**t hits it%u2019s bailouts & now everyone%u2019s a socialist. Much better to have a regulated market first & not allow this to happen. The "American Dream" the Canadian etc, is false. There are 1000%u2019s of people that don''t earn enough or deserve a home just because they feel it is their right. The greedy bankers fed on that dream, to create bogus lending policies that no one in government was watching. The bankers & wall street types who created the mortgages & %u201Csecurities%u201D should have all their assets stripped & sent to jail. What''s the difference between this & the Enron or Worldcom exc''s in prison? Isn%u2019t Washington supposed to be there to regulate & watch over the country? Failed foreign policy & domestic policy. The worst political leader in the history of the western world, ever. I hate feeling this way but the great depression may look like a walk in the park compared to where we are headed. 1929 was only solved by the events of 1939. What will bring us out of this?
Reply to this comment
by ptz1961 December 15, 2008 12:46 AM PST
Morley ("Living Large") knew where this was going, even if he didn''t predict the crash. We are in for some serious pain to come (I''m in Canada). Add collapse%u2019s of housing, construction, auto%u2019s, resources etc. The numbers are just for resets. Add the millions of newly unemployed & those numbers will be 2x +. Here our banking is regulated but we''re so closely linked we''ll follow the same path. Americans love to talk ''free enterprise'' & free markets. When the S**t hits it%u2019s bailouts & now everyone%u2019s a socialist. Much better to have a regulated market first & not allow this to happen. The "American Dream" the Canadian etc, is false. There are 1000%u2019s of people that don''t earn enough or deserve a home just because they feel it is their right. The greedy bankers fed on that dream, to create bogus lending policies that no one in government was watching. The bankers & wall street types who created the mortgages & %u201Csecurities%u201D should have all their assets stripped & sent to jail. What''s the difference between this & the Enron or Worldcom exc''s in prison? Isn%u2019t Washington supposed to be there to regulate & watch over the country? Failed foreign policy & domestic policy. The worst political leader in the history of the western world, ever. I hate feeling this way but the great depression may look like a walk in the park compared to where we are headed. 1929 was only solved by the events of 1939. What will bring us out of this?
Reply to this comment
by fredflinsto2 December 15, 2008 12:54 AM PST
As a mortgage loan officer, this is no surprise to me. the first time I heard about the "pay option ARMs" I knew what the outcome would be, just nobody wanted to hear about it. It would seem that I was peeing on their parade. Anybody with half a brain sw this coming. I would like to know how the investment managers did not see it coming.
Reply to this comment
by fahren451 December 15, 2008 1:03 AM PST
Mr. Pelley, you never uttered the word "speculators" but instead called them "investors."

Acquaintances of mine put down payments on several unbuilt condos in the sky in Miami because they were going up in value at incredible - literally beyond credulity - rates. They were speculating that prices would rise by the time the building was completed. This fueled more building which fueled more speculation which fueled more liar loans.

Stats say that 7% of all loans before 2001 were subprime paper. By 2005 than number was 20%. FauxNews is spewing propaganda that those subprime borrowers were minorities who couldn''''t pay their own mortgage. I have observed far more small time speculators who lied about their income to buy several homes or condos in the hope of flipping.

Why don''''t you do a story about this part of mortgage fraud?

Posted by SiValleyGuy at 10:45 PM : Dec 14, 2008

The poor are easy scapegoats; they have no means to defend themselves from their accusers.
Reply to this comment
by perk235 December 15, 2008 1:04 AM PST
I personally know 3 mortgage brokers who are now independently wealthy due to the "yield spread premiums" and real estate fees on mortgages they sold. With that incentive and the securitization of mortgage debt, it''s not wonder we''re in deep.

That''s not to mention the risky bets worth $60 trillion or more of derivatives that financial institutions made.
Reply to this comment
by richrdh-2009 December 15, 2008 1:25 AM PST
The second wave is coming fast! So much for Barney Frank''s comments that we will be out of this mess by the end of 2010 at the latest. He should have listened to this report before he spoke optimistically about the end of the recession.

I am baffled by the "free market" is the answer chatter. The free market unrestrained did this damage. Allowing the market to self correct could take years and push millions of people into poverty. More free market is suicide.
Reply to this comment
by incog-nito December 15, 2008 1:31 AM PST
I am baffled by the "free market" is the answer chatter. The free market unrestrained did this damage. Allowing the market to self correct could take years and push millions of people into poverty. More free market is suicide.

Posted by richrdh at 01:25 AM : Dec 15, 2008

Baffled? You must be a newbie. What do you expect when people havee been told over and over since grade school that the "invisible hand" of the free market solves everything.
Reply to this comment
by seventim December 15, 2008 1:35 AM PST
http://www.atuu.eu/home.html
Reply to this comment
by jackobyte December 15, 2008 1:59 AM PST
What shift the problem 5 years to the future? Note: article says people are already defaulting on the teasers!
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by missingamerica December 15, 2008 2:18 AM PST
Ever notice the linkage between the Republicans and Big Business? Did you notice that, for all practical purposes, they are one and the same?

Notice how our Big Businesses are crashing and burning? Notice how the Republicans have managed to make America''s economy crash and burn?

Do you see the linkage, yet?

Why are you still voting Republican?
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by incog-nito December 15, 2008 2:21 AM PST
If you''ve ever wondered how they came up with the $700 billion figure for the financial bailout, here''s the answer:

"It''s not based on any particular data point, we just wanted to choose a really large number." - a Treasury Department spokeswoman explaining how the $700 billion number was chosen for the initial bailout, quoted on Forbes.com Sept. 23
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