With consumer confidence dropping, the consumer’s swagger is gone. Reports of foreclosure speculators profiting from other’s misfortunes and hedge funds picking through the carnage of non-performing residential mortgages are the stories of the day.

In other words, it’s a perfect to time to begin delivering contrarian optimism. After all, 8 months have passed since the summer credit meltdown and we are ready for a change. Aside from the NAR and other trade groups who are always on the glass is half full side, we are starting to see more contrarian coverage emerge.

During the Y2K panic of 1999, there was tremendous anxiety built up over the collapse of the world economy because more zeroes were needed in the proverbial electronic date field of most software applictions. Will the credit crunch coverage follow the same path (an overhyped media consipiracy enabled by slow news days)?

Evidence may be seen in the John Berry column on Bloomberg who said the ARM reset crisis won’t be as big of a deal as everyone feared.

I cam across this column last week and was going to write about my doubts in the logic given the short window of data that was looked at but was pleasantly surprised when I came across Andrew Leonard’s column (a regular read of mine) “How the World Works” called: Whatever happened to the great ARM reset crisis?

Emphasizing that the data Berry based his conclusions on came from just one month of mortgage-backed securities issued by just one mortgage lender, Smith took the time to look at a database containing information on 38 million mortgages issued between 2004 and 2006. That database shows that out of 8.4 million ARMS originating during that time period, only 9.1 percent had initial interest rates of 8.5 percent or higher. A whopping 1.1 million were 2 percent or lower. (Contrast that to Berry’s assertion that “most of the initial rates were 8.5 percent or more.”)

Deja Vu: The NAR press release last week.



3 Responses to “[Contrarian Media] ARM Reset Crisis Not Y2K Deja Vu All Over Again”

  1. John K says:

    Well, I definitely feel the media has been on overdrive on this issue, as they seem to be on every issue, in this “24-hour-a-day” news cycle (to use a cliche).

    It’s not surprising that some are already being contrarian. It’s inevitable.

    That’s why I say, everyone just needs to cool off for six months. We should be very scared about making rash moves. I fear those in power will harm us in the long-term in exchange for short-term solutions that end up costing more than the original problem.

    Of course, some people say that the subprime lending crisis and housing slowdown has been going on for 18-months or two years, and that the time for waiting has passed.

    I say, no. Actually, I say it in a much more vulgar way, as in “calm the F- down.”

    But, I’m not an economist or politician, so what do I know about what we should do?

  2. Jonathan J. Miller says:

    John, I get the distinct impression you know more than most politicians and economists. 😉

  3. brenda says:

    Mish’s website has a great analysis of this. BUT, I think the analysis may be off if and when someone in whatever regulatory entity may have control decides that we need to control the dollar. Oh, so many reasons to devalue, but the world (or maybe just the part of the world controlling certain commodities) may just get too pissed. If for some reason we NEED to increase interest rates, there are still a whole lot of 3/1 and 5/1 arms resetting over the next few years. The Fed’s recent and rapid decrease in rates saved this round of resets, but that’s only part of the picture.

    Alt-a, piggy-back helocs (big, big problem methinks), and simply allowing 3x income (and higher), combined with increasing unemployment and underemployment are the really big issues. Oh, and maybe the price of food and fuel. But maybe the people can just ignore underemployment, unemployment and the price of food and fuel for the next 6 months?