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The fallout of the ridiculous state of the home buying business in 2005 and 2006 is going to last a long time. House prices will need years to work off their irrational values, more people are going to lose their homes and Wall Street can probably look forward to some more nasty surprises.

The mortgage meltdown has arrived at something of a turning point. So far, the loans that have gone bad were among the worst of the worst. Some were based on outright fraud, either by the lender or the borrower. In many cases, buyers were never going to be able to make their monthly payments and were instead banking on a rapid appreciation in home values.

But the pool of people falling behind on their house payments is starting to widen beyond this initial group, and adjustable-rate mortgages are the main reason. Starting in the spring of 2005, these mortgages began to get a lot more popular, largely because many buyers couldn't afford to buy the house they wanted with a regular mortgage.

They turned instead to a mortgage that had an artificially low interest rate for an initial period before resetting to a higher rate. When the higher rate kicks in, the monthly mortgage bill typically jumps by hundreds of dollars.

The initial period often lasted two years, and two plus 2005 equals right about now.

The peak month for the resetting of mortgages will come this October, according to Credit Suisse, when more than $50-billion in mortgages will switch to a new rate for the first time. The level will remain above $30-billion a month through September 2008. In all, the interest rates on about $1-trillion worth of mortgages, or 12 percent of the nation's total, will reset for the first time this year or next. A couple of years ago, by comparison, only a marginal amount of mortgage debt - a few billion dollars a month - was resetting each month.

So all the carnage in the mortgage market thus far has come even before the bulk of mortgages have reset. "The worst is not over in the subprime mortgage market," analysts at JPMorgan recently wrote to the firm's clients.

It isn't hard to figure out what will happen when buyers who were already stretching to afford a house are faced with suddenly higher payments. Many will manage. They will cut back on other spending, or they will refinance their mortgage and get a new one they can afford. But there are also likely to be a shocking number of people who lose their homes.

From 1994 to 2005, some 3.2-million households were able to buy homes thanks to subprime mortgages or other such loans, according to an analysis by Moody's About 1.7-million of them will probably lose their homes to foreclosure when all is said and done. More than half of the homeownership gains from subprime mortgages will be erased.

The flood of those homes onto the market will further depress house prices. So will the newfound conservatism of mortgage lenders, which will make it harder for tomorrow's buyers to get a mortgage.

The big unknown is whether the housing bust will cause a recession or a bear market. Most people who have looked closely at the mortgage market argue that the answer is no and that the damage will be contained.

Rationally, the argument for optimism is pretty compelling: The economy's strengths do look big enough to overcome its weaknesses. Yet even many of the optimists confess to an uncomfortable amount of uncertainty. There has never been a real estate bubble like the one of the last decade. So it's impossible to know what the bust will bring, especially when there are still so many mortgages that are about to get a lot more expensive.