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.

-OR-

Watch the video report from CBS below.

Comments

[ckfan]

This is why Obama kept saying its going to get worse.

[geobushono]

With Robert Rubin whispering in his ear.
Which makes me wonder how much Rubin lost to Madoff.

[ShakeYourComplacency]

Now everyone is beginning to understand why the global meltdown wasn't caused by a few poor black people wanting homes. Everyone bought homes. And guess what happened to renters like me suffered through what you people called the "boom?" There was nowhere to live. That's right. Condos were converted into rentals, and private owners wanted to sell instead of bother with rent. I had no place to live. I went to the real estate office, they asked my budget, I asked for 800 for a small one bedroom, and they shook their heads and said they had zero listings. We're talking $1,000 or more for a stripped down one bedroom. I can tell you for a fact that THAT pushed a lot of people into homes, because it was literally cheaper to own a condo than to rent. We all needed a roof over our heads, what could anyone do?

The price of home were incredibly overinflated, and there was all this buying and selling going on. That's what caused the bubble to begin with. Investors swamped the market because as you recall, the stock market busted before that, and investors then moved into real estate. Developers were having a field day. Nobody was regulated and the government stood by and did nothing. The government could have demanded a percentage of affordable homes built along with every expensive one, but they didn't.

[DuganS1]

The was never a shortage of rentals. And the statement about renting being more expensive than buying is flat out false. The cost of homes during this decades housing boom has never been more expensive relative to renting. I also don't know why you think $1000 for a one bedroom is expensive. In the area I live it is extremely cheap - you'd pretty much be living in the projects.

[TomInJax]

I beg to differ. Cost of living is geographically relative. Where I live in Jacksonville, FL 800 will get you a nice very nice 1 bedroom in a good neighborhood. I pay 909 for a nice 2 bed, 2 1/2 bath town home in a nice part of town.

Last year a company I deal with consolidated all of their southern customer service and operations to Jacksonville, and the people that wanted to stay on had to move here. Those that moved from the Alabama area were not happy about the rise in the cost of rent or homes. They were given some kind of COLA and expenses but they still weren't happy about the difference. I think it averaged about $150 a month depending on the size of the house or apartment.

[greeniefromOH]

Well, I don't know where you live, Dugan, but I disagree. There has been a shortage of rentals that are affordable here in the suburbs of Cleveland for several years now. Perhaps in a city, $1000 for one-bedroom rent is reasonable, but in the suburbs, it's considered fairly extreme. We pay $650 for a small 2-bedroom and most folks around here cannot even afford that.

[RedneckDem]

So, since you have a different dynamic where you live, that makes it so for everyone else??? Unbelievable. This poster always has some wise a s s comment that pertains to how he is affected by any one situation, as opposed to taking into account other people and areas dunamices. It's called narcissism- the idea that whatever affects you must be affecting everyone else the exact same. Gives them great excuses for all of their screwups.

[RedneckDem]

dunamices=­dynamics..­..

[NOLIESPLEASE]

The real culprit of this melt down..... www.freedomtofascism.com . The answer is right before our eyes but the government will not acknowledge it.

What a disaster !!! and the cure is so simple .

[Troubledwawa]

I watch the report Sunday and felt Scott Pelley did an excellent job. Based on other sources of information, I already knew what the Alt-A was.

The best quote from Mr. Pelley's report was we are only in the 3rd inning of this asset meltdown.

For those who are interested in learning more about this Alt-A fiasco, allow me to introduce you to Mr. Mortgage on you tube:

http://www.youtube.com/watch?v=pmeBSWI9sF8 "Here comes the Alt A crisis"

http://www.youtube.com/user/markmti His youtube home page with a lot of information on what to do, if your caught up in his mess.

(Note: I don't know Mr. Mortgage, but have found his information and insight to be helpful).

[TinRoofRusted]

Excellent links. Thank you!

[RButler]

When one is going to jump out of a window should he open it first? This is all so new.

[sonoffestus]

I say open the window first. You want to be in good shape when you hit the pavement. it's important to look good until the end.

[Chip W]

That the housing meltdown was restricted to sub-prime never made sense to me. The free-wheeling mortgage market was there for everyone, the difference for sub-prime people being they'd likely be less savvy.
I don't understand the time lag. And what's Alt-A?

[000Jade000]

My understanding from the info. in the video is that the pure subprimes were given en masse before the other mortgages. The bars shown in the graph (2009-2011) for the Alt-A's signify when those mortgages reset and homeowners begin paying a higher rate. It looks like we're towards the end of the subprime defaults . . . the time-line lag is because most of the other mortgages have not reset yet. At least that's how I understand it.

Here's an Alt A definition: http://www.investopedia.com/terms/a/alt-a.asp?viewed=1

[Bjarni]

Sub Prime mortages were people who couldn't afford to buy a house to start with that took on the obligation, they kept their houses until the market started to go down mainly because they could refinance and their house was appreciating. When the market started slumping they couldn't renegotiate their loans or change them anymore so they started to fall behind on their payments. These people had the same mortage payment throughout the whole time and could hardly make it.
ARM and Alt-A Mortages had lower payment for X-number of years, some of these are already going backrupt but you have to remember that most of them had a 5 year reset time, and after year 5 their payment goes up. So these people had a buffer for a longer time, not having to worry about their payments and alot of them were hoping to be able to renegotiate a new fixed rate mortage when their ARM teaser rate ran out. With housing prices falling banks will not give new loans to pay off old loans if the property is worth less than what the loan is for, so now these people who bought houses in 2003-2007 with a 5 year delay will see their mortage payment shoot up with no chance of saving themselves.

[000Jade000]

Oh my God. I thought that the worst we would see iafter the sup-primes was strip malls and companies getting in trouble with their mortgages.

Given the problems that we are seeing now with layoffs, bankruptcy, collapsing banks, etc., how can our economy even hope to survive what's down the road???

This is very frightening.

[CaptainHowdy]

I think that it's pretty obvious what happens next.

[tatertots]

Gordon Gekko was wrong. Greed is not good.

The derivates market crash is just beginning. There will be 400 trillion dollars of global debt that
is going to come crashing down over the next couple of years. It is flat out terrifying. Thom
Hartmann has been talking about it on Air America radio for years. It was so scary that I refused
to accept it. Had we paid attention we all could have seen this coming. Paul Krugman tried to
warn us that money was being traded in strange and mystifying ways. Look where the greed has
gotten us. Just look where it will be taking us.

And Phil Gramm, who helped lead us down this path called us a 'nation of whiners'. It is all quite surreal.

nationofwhiners.com Looks like McCain bought the web address. They were dumb but not stupid.

I pray Obama and team really grasp what is going to be handed to them on a steaming platter.
I mean REALLY comprehend it.
It's time for big ideas and big change or else.

[hu.man]

The real estate market is in process of deflating. The problem is that this is putting undue stress on the banks. The government is going to continue pumping liquidity into the banks to make sure the rest of the economy doesn't tank.

There is a crisis of confidence present and I believe Obama will address this crisis through active leadership in coming months. As long as we can continue to stimulate the economic activity within our economy even if that is partially done through international demand for goods and services here in the U.S., we will be in good shape.

Folks who are entangled in the housing bubble will be set back financially, no question about it. Banks have the safety net of the government to stop them from cratering. So it is just an issue of stimulating the economy through increasing business and consumer confidence and additional targeted government spending. This is a psychological malaise not a real one.

A real problem is, for example, would be rapidly increasing energy prices that can catch the entire economy off-guard and put us on a long-term path of adjusting our energy consumption choices. This can put the economy in a recession while everyone figures out how to adapt to a new cost structure in a basic necessity such as energy. Fortunately, the energy prices adjusted down real quickly and we have averted this recessionary episode.

[Bjarni]

We as taxpayers are the safety net for the Government since the government doesn't produce anything. And we as Tax Payers have no safety net apart from the Government so the cyrcle can break and we're all in horrible shape. Saving money and living within your means is the only way the government, companies and public can be certain to no fail, but people here in the US don't know how to save money.

[Seattlelite]

Anyone still on the fence about the need for more government regulations and oversight?

[Chip W]

Many who will never stop worshiping the God of free market.

[ChristianEcon.com]

Yup--the free-market belief-based crowd makes the religious ones look utterly empirical.

[rogerse]

WE can't afford to spend taxpayer money bailing out failing business, there are other people we need to be concerned about who are even worse off.

[ckfan]

Both matter - bailing out businesses & people. If companies go under and people don't have jobs, then none of it matters. The answer to all of this is jobs, jobs, jobs, cash, cash, cash.

[tomas0808]

That house that's down the street that is 500,000 dollars was 20,000 dollars in 1968. If the price of that house had followed the general inflation rate that house would be 100,000 dollars. In real terms that is what it is worth, in a fair correspondence to a human being's output and his realistic ability to achieve. I'm afraid this is The Great Leveller, and prices might tumble all the way down to where they should be. That will be really ugly for people who bought houses the last twenty years but for people like me who refused to go into debt and become a slave to the banks it just might be the only chance we ever have to own a house

[handyallen1]

yes until housing prices get in line with wages or viceversa

[Tom95134]

Why are there no questions being asked about what will happen when the commercial real estate mortgages start to default in large numbers. Another case of keeping their head in the sand and hoping that things get sorted out before that happens?

[FogBelter]

I really don't think most people have a clue what's coming ... you hear the cheerleaders on the Business Channels saying we're reaching the bottom of the Real Estate slide, or how stocks are gearing up for a return, but all anyone has to remember is that the most irresponsible people, in business and government, have been the "caretakers" of the Economy for nearly 30 years without oversight. 30 years to engage in every kind of selfish, destructive avarice they could think of with no ramifications for the damage they wrought.

And now we get the masochistic pleasure of every aspect of their moral bankruptcy as it unravels for us all to enjoy together.

It's almost a Shakespearian tragedy.

[Venom5809]

Go through the bios of the people on the business channels.
None of them actually have any business degrees or business experience.
It is scary.
And they are giving out advice.
Even quite a few of the anchors on the major networks have no college degree either, such as Glenn Beck and Rush Limbaugh and Sean Hannity.

[FogBelter]

If you want to lead a Nation into the abyss you hire idiots as your trailblazers.

[Brothaman2k]

Man, how could we be so stupid?

[jsarets]

More like... Man, how could this have gone as far as it did without collapsing?

Let's face it. Wall Street never made sense to anybody. But as long as everybody kept making money, nobody asked questions about the mountain of debt and whether there was anything below other than more and more debt to support it.

[newpantaloons]

"More like... Man, how could this have gone as far as it did without collapsing"?

Because, in actuality, the Administration and the Fed have been pumping money into the banks on Wall Street for quite a few years now. They thought they could ride this fiasco out and be out of office when the sh*t hit the fan. That is the 'best' and only good thing about this. The egg is forever on THEIR face.

[kgordon]

I'm no genius on financial matters, but I saw this coming four years ago... how could anyone watch all those houses being remodeled and upgraded, cars and boats bought from re-fi money, vacation homes purchased with "equity" generated from inflated real estate values driven by low teaser rates and liar loans, and fail to wonder what happens when the 5 years are up and the loans reset? What, like we were all gonna get big fat raises to cover the difference? No, children, we are not all above average... we've been sold the gold at the end of the rainbow, and we've been had.

Y'all remember how embarrassingly frugal your parents were? They still had living memory of what we are about to go through... if yours are still alive, you might want to call them up and ask them for some gardening and canning tips, as it appears that we've been left to our own resources by the masters of the universe!

[drkazmd65]

I'm no genius on financial matters either kgordon - but you sound like a smart one to me.

I wish my Grandma was still around (died last year at age 95) - as she had grown up during the Depression and raised two kids during WWII. She would have known what to do.

Damn I miss that ornery old lady.