Second Mortgage Disaster Looming On The Horizon

When it comes to bailouts of American business, Barney Frank and the Congress may be just getting started. Nearly two trillion tax dollars have been shoveled into the hole that Wall Street dug and people wonder where the bottom is.

As correspondent Scott Pelley reports, it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy. In the executive suites of Wall Street and Washington, you're beginning to hear alarm about a new wave of mortgages with strange names that are about to become all too familiar. If you thought sub-primes were insanely reckless wait until you hear what's coming.

One of the best guides to the danger ahead is Whitney Tilson. He's an investment fund manager who has made such a name for himself recently that investors, who manage about $10 billion, gathered to hear him last week. Tilson saw, a year ago, that sub-prime mortgages were just the start.

"We had the greatest asset bubble in history and now that bubble is bursting. The single biggest piece of the bubble is the U.S. mortgage market and we're probably about halfway through the unwinding and bursting of the bubble," Tilson explains. "It may seem like all the carnage out there, we must be almost finished. But there's still a lot of pain to come in terms of write-downs and losses that have yet to be recognized."

Keep reading here.

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Watch the video report from CBS below.

Comments

[goodytwoshoes]

VERY simple solution to solve the now and future mortgage crisis. Interest rates on All MORTGAGES (regardless of amount, length or rate etc.) should be reduced to 4.5% immediately: no modifications, no refinances, no requalifying, just change the rates on the lenders computers -- plain and simple!!! Just do it! Everyone will have more cash to buy food, clothing, cars etc. on an ongoing basis!! This will stop foreclosures in their tracks! Stimulate the economy by giving everyone a break! Not just Wall street! This would have immediate results, and even though the banks would make less money, they would still be making money. Win - win for everyone. Those who have already lost their homes because of "trickster adjustable mortgages" should get a clean slate. If they can pay a low rate FIXED mortgage, let them, do not penalize them by making it impossible ever to buy a home again. Do it now! Call it the Lenders Holiday Solution! Just Do it! Pass this solution on.

[PhilipTaylor]

So for Home Owners Living in their homes, simply replacing these "RIP-OFF" mortgages with 4% Fixed Rate Mortgages could stop 85% of the PAIN! Of course, banks need to come to the TABLE and Reduce Principals!

The Speculators need another less powerful program that removes the RIP-OFF mortgages using 7% to 8% Fixed Rate Mortgages and much smaller write-downs if they can qualify.

The problem is the FED and Paulson have taken away the INCENTIVE to get the Banks to the TABLE by FEEDING the Banks large funds that let them sit an WAIT IT OUT!

[jalowe1957]

Just get a FHA mortgage with a low annual fixed rate, get it in writing, and be done with it.

[LunaPark]

Where is the justice in bailing out people who made bad decisions? Either banks made bad loans, or homeowners took bad loans. They should all be allowed to fail. Artificially inflating the value of homes by dropping the interest rates to zero, or "fixing" the loan only prolongs the suffering, and hurts the responsible homeowners and lenders.

[JBS]

So you think bailing out the Wall Street thieves is enough, and nothing should be done for the victims?

[PhilipTaylor]

Where is the JUSTICE in allowing Corrupt Mortgage Bankers to NOT Serve Time for the PAIN THEY have CAUSED?

The Corrupt Investment BANKSTERS new what they were doing! They should do TIME!

Certainly, the Speculators do not deserve 4% fixed rate mortgages but the Homeowners who live in their homes deserve it!

[Chip W]

I don't disagree, but some people were bamboozled, and it would be nice if they had some legal recourse.
But I do wonder what would happen if this were allowed to play itself out. Government intervention just adds to the artificiality of the housing market. This market is so far away from being supply/demand driven that who knows what houses are "really" worth.

[littlepuffycloud]

It's not that easy. The mortgage brokers lied to thousands of people, including people with credit scores over 800...many of these brokers were/are nothing more than con men.

[pickwickianmom]

I just found out that our house will be in foreclosure next week. Not because the mortgage payments were behind--they weren't. The bank just said they re-examined the loan and decided that they would need to re-adjust our rate from 3.5 fixed to 7% and, oh, we needed to give them a thousand dollars by Friday. So, even though we kept up mortgage and did nothing wrong, the bank has decided to dump us anyway.

This after the banks were shoveled billions of dollars. Doesn't make sense to me.

[EinChicago]

That doesn'ty sound even vaguely legal. Have you spoke to an attorney?

[brooklyncitizen]

This doesn't sound kosher.

Get an attorney or contact a group that advocates for victims of predatory lending.Make sure you undestand the length of the term for the lower rate and move quickly.

[goodytwoshoes]

Wow! That is horrendous!! How can they get away with that?

[legj23]

Make all lending institutions re-write all mortgages @ 4 % fixed. Loan's can't exceed 80% of the value of the home. All closing costs occurred should be direct tax write-offs. Sit back and watch the economy pick up.

[joemotion0]

Billions for Banks but Nothing for You!

250 billion of your tax dollars have been allocated to the banks. Have you benefitted as a result?

The Treasury Department, through its TARP (Troubled Asset Relief Program), has re-capitalized America's banks, and the banks are supposed to be lending that money to their customers. Only they're not!

The banks have been hoarding the money. Some of the biggest banks have bought other big banks. Some regional banks have acquired community banks, specifically to qualify for TARP money.

None of this helps the homeowners­/taxpayers who must pay for it all.

The banks must now do their part to stop the losses in the housing market. We believe the best way to do that is to modify the loans of the millions of honest, hard-working homeowners who are under water.

Legitimate loan modifications, including the write-down of principal balances, will stop millions of new foreclosures and put a "floor" under the housing market. The funds have already been deposited in the banks. No new money has to be allocated.

Without legitimate loan modifications that bring loan balances in line with current market values, there is no real incentive for homeowners to stay in their homes.

[wordvarc]

How low will it go?

My neighbors said about his manufacturing business, "it's not that business is slow, there is NO business."

Shall I start a garden to feed my family or store grain for the next decade?

How much bleeding will result from the sudden deflation of this deregulated "trickle down" balooned economy anuerism that has been overblown and inflated over the past 25 years?

[MsCanadian]

This is appalling news. I am puzzled by one thing though - everyone talks about people losing their homes, and a surplus being on the market, but no one is saying where these people are going to find other places to stay. Surely all of the affordable housing is taken, so what happens to the people who do lose their homes? It seems that builders were constructing more houses and condos for sale, but that there isn't much rental property at a reasonable rate. And if a person has defaulted on their mortgage and lost his home, what bank will lend him money for a new one?

[Chillinout]

Some are moving in with friends or relatives and some are becoming homeless. The new construction in this country is going down the drain.

My state lost 11,000 jobs last month and it was mostly in construction. New house sales are already in the toi_let and going down even more. There are more people on food stamps in this country than at any other time since food stamps became available.

A lot of people are just hanging on and if things don't improve in this country soon, you are going to see a lot more unemployment and homelessness.

[wordvarc]

The US lost 550,000 jobs in November. A half million more have stopped looking for work.

[wordvarc]

One eighth of all mortgages are upside down or in foreclosure.

[PSTEN]

This info has been out there for awhile just not in the MSM. I listed to Fresh Air, Terry Gross. She had a guy that explained the situation pretty much as this 60 minutes pieces. That Terry Gross program was last spring when the wheels of this bad train started rollin. The next wave is supposed to be 1.5x bigger so I think we can expect more failures of banks, businesses, more home loss. And I think this also explains why alot of the large banks are holding onto the TARP money. They know they goin it need about this time next year. Christmas 09 is going to be a dark one I'm afraid.

[markinaz]

As long as big daddy gubment stands by for a quick bailout, the banks really have no incentive to rework anyone's loans.

[hereitis]

In the words of SNL's Church Lady, "Well isn't that special?"

[GlobalInvestor]

Go to the Global Investment Watch blog to read a good article about how to interpret our current economic crisis and why we should use this time as a chance to protect future generations from similar irrational behavior by rejecting outdated economic theories which have dominated our markets for the past fifty years...

http://globalinvestmentwatch.com/2008/12/16/why-to-reject-economic-nihilism/

[lmalone]

This article points out a serious disaster to the real estate market. Should we face yet more foreclosure rates (equal to the past few years) it will also gravely impact those buyers that have purchased foreclosure properties recently (can we afford more declining values?). If we face more declining values it will likely trickle down to homeowners that are not currently facing foreclosure as our economy continues to struggle in it's attempt to absorb the impact from the increase in troubled homeowners no help is in site. This is not a small issue and one that it seems has not been considered by lawmakers. Nothing has been done to date to help the 7.8 million American homeowners that are currently behind on their payments (with many headed towards foreclosure).

With the possibility of so many more homeowner's facing the possibility of falling behind, investors of mortgages are pushing back at lender's for offering modifications to help keep homeowners out of foreclosure. While very short sighted on the part of the investors it should be a part of the national economic conversation.

Making mandatory the option for lenders to offer loan modifications is a sure way to help our troubled economy by avoiding massive amounts of foreclosures. . All data indicates that the injection of the 'bailout' funds have done nothing to stabilize markets and in fact, have led to it's increased instability.

Learn more about what you can do if you are facing foreclosure at, www.brevan.net

[FrankenPC]

I know this is inherently evil...but I'm seriously considering it: Stop paying my mortgage for 120 days then take that stockpiled cash and walk away from my home of ten years. It was my dream to retire on the homes equity (by buying an off the grid plot of land), but my dream is dead.

So might as well cut losses and save up cash prior to the inevitable conclusion to this mess.

[wordvarc]

Get in line. This new fraud is already happening.

[cblcar]

Why aren't people moving out of their homes into small apartments and renting their homes to pay the mortgage rather than losing it? It would seem that with so many people losing their homes, the price of rentals would be pretty solid.

[Bjarni]

In the market as it is now, rental prices have fallen, not as much as house prices, but substantial still. Noone will pay for a rental now what it cost to have a mortage 4 years ago, so either way the home owner cannot hold out 1 expensive house being rented out under mortage payment rate and live in a cheaper house.

[DasBoatless]

Yes, but if you can rent a home to cover at least the mortgage and rent cheaper then you are in theory ahead of the bills. And buliding equity. Retaining your credit rating. Affording yourself and family the opportunity to refinance later when the money comes free...