It’s not an exact science, as you can see, but it’s still coming.

Chuck

http://piggington.com/revised_.....ption_arms

I understand what you’re trying to say, basically that perhaps these loans have already defaulted and are no longer in the queue to clear out.

There have been no reports that corroborate that stance, and no clear evidence has been presented that that’s the case.

I very much doubt that we have seen even a significant population of neg-am arms come through yet. Because of the amortization schedules, most won’t begin to recast until mid 2010, and not peak until 2011 or 12 due to the current low-rates.

However, once they do recast, they have very high severity losses and the as obvious, the default rates are worse than subprime. In California coastal, Neg-am products were chosen nearly 2 to 1 over subprime. If you include alt-a, they are significantly higher.

Chuck

Say we had 200,000 loans in a pool. At the time 74,000 are in default – thus 37%.

Say further that thanks to an ocean of foreclosures thus far, the pool shrinks from 200,000 to 100,000. Of these remaining 100,000, 40,000 are in default – thus 40%

So on the face, we went from 37% to 40%, making you assume it was worse – only to find out the number of foreclosures slipped from 74,000 to 40,000. Even worse, the potential fuel for the 2nd tsunami went from 200,000 to 100,000.

Not saying this is what is happening. Its just the problem with looking at percentages only.

OK but what does that mean in numerical terms?

Say we had 100,000 loans in a pool. At the time 37,000 are in default – thus 37%.

Say further that thanks to foreclosures, the pool shrinks from 100,000 to 80,000. Of these 80,000, 20,000 are in default – thus 40%.

So on the face, we went from 37% to 40%, making you assume it was worse – only to find out the number slipped from 37,000 to 20,000

Not saying this is what is happening. Its just the problem with looking at percentages only.

Chuck – I think the key issue is the number not necessarily the percentage.

Say 200,000 option arms were issued (2002-2007) with say 100,000 of them to reset 2009-2011.

http://www.calculatedriskblog......ismal.html

Currently 40% of all OA borrowers are in default (meaning not yet foreclosed on)

54% of all currently open OAs are in California. That’s up from the 37% I read some time ago.

That could mean several things, but the most likely is that the problem is getting WORSE (as expected) and not better (as not expected).

Chuck

There is one counterargument you missed, which I think is relevant. Specifically, a good number of those Alt-A and Option Arm spikes we saw resetting in the 2009-2011 period went into foreclosure long before they even had a chance to reset.

Put another way, the reset chart says the 2nd wave is still coming. Problem is that is a static picture of the problem, circa 2007. It is now nearly 2010, and much of that 2nd wave is long gone.

At least thats the theory – care to opine?

Bernanke is Biflational. He goes both ways.