WAVE 2: More Foreclosure Pain Coming

Foreclosures have been mentioned in the national news recently but not as often as they were last year. Lets look at today's chart from Credit Suisse and find out why:


This nationwide reset schedule starts in January 2007. As you can see, we went through a massive wave of resets in 2007 and 2008. The subprime piper was paid.

Currently we are sitting in a lull between waves. The next wave coming is not subprime but the rest of segments of loans. Namely Alt-A, Prime, and (hold your nose) Option ARM loans. Notice that the resets don't end until 2012. That is quite a ways away. Also keep in mind that the foreclosures that occurred heavily in in 2007/2008 happened while people still had jobs. The next wave of resets is going to occur in an adverse employment environment. Uh-Oh!

Think of the housing marketplace as your digestive tract. You were at a party and ate a yummy fruit salad (easy money loans) somebody made. It was so good, you couldn't stop eating. As the party winds down you ask the person who made the salad what was in it. They tell you it was made mostly of prunes....you know how this story ends. There is that ominous hour or two while you comtemplate the uncomfortable future that awaits you for indulging in your fruit salad binge.

Right now we are just finishing purging the worst of the bad loans from the market through the foreclosure process. We are now poised for Wave 2 which starts next month. Hold on tight!