Mortgage Market: How Much Worse Can it Get?

August 6, 2007

American Home Mortgage filed for bankruptcy today. This is hardly surprising given the announcement on Friday they were cutting 90% of their staff.

The turmoil in the mortgage market has taken yet another victim and even though we all hope that they will be the last, it is not likely. Earlier this month, the NY Times reported that the amount of adjustable rate mortgages set to be reset to market rates will rise sharply over the next few months. The article lists that “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.”

“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. “The reason for our pessimism is that loans originated in late 2005 and all of 2006, the period that saw peak origination volumes and sharply decreased underwriting quality, are only now starting to reset in large numbers.”

For the NYTimes Article
Link to JPMorgan Report

Posted in Adjustable Rate Mortgages, American Home Financial, Carry Trades, Stock Market, Subprime, US Dollar