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« Investment Roadmap: Currencies | Main | Investment Roadmap: Bonds »

Tuesday, May 05, 2009

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Forkoholic Serge of Elliott Wave Forkology

Yelnick, u can't post naked housong charts - put some EW count! :) and a pitchfork

john walker

Yelnick,

You wrote "Option ARMs are soon to reset to higher interest rates..." Is there any data to support the "soon" and "higher rates"?

In fact, current refinancing rates are substantially /lower/ than in recent years; see here for the various indexes used for ARMS:
http://mortgage-x.com/general/indexes/default.asp

If there is any hard data to support this "ARMs debacle" outlook, please tell us.

yelnick

john walker, option ARMs are designed to reset, usually after five years, or when deferred interest accumulates principal above 110% or 115% percent. The good news is low rates have lengthened the time of reset a bit; the bad news is that the tidal wave is nonetheless built in and coming. Here is a recent discussion: http://seekingalpha.com/article/131772-breathing-room-for-option-arms .

john walker

Yelnick, The resets are coming, but as of today the refinance interest rate is /lower/ than the when-issued rate, so resets are a net /benefit/ to the homeowner. For the tidal wave you describe to be harmful, nominal rates would have to rise sharply (which, I realize, you expect). My point is that the reset PER SE are not a worrisome issue, UNLESS nominal rates rise. (As per the bond thread, we disagree on the likelihood of nominal rates rising during a deflation AND economic contraction.)

yelnick

John walker, the option ARMs reset either when interest puts them over 110% or 115% of principal, OR when five years is up (typical time period). Low interest rates are delaying the rests but they are coming. The article on this most sites point to is

http://www.businessweek.com/lifestyle/content/apr2009/bw20090416_103126.htm?chan=top+news_top+news+index+-+temp_lifestyle

Another is at one of my fav sites, SeekingAplpha:

http://seekingalpha.com/article/113063-option-arms-the-banking-backdrop-of-2009

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