The Next Sub-Prime?
By now most Americans have heard about sub-prime mortgages and the havoc they’ve wreaked on financial firms and the economy.
But on Sunday, 60 Minutes had a great story on the next mortgages that will become everyday words to Americans. And they’re called “Alt-A” or “Option Arm” mortgages. Check out the video story after the fold and more.
The gist is this: there are thousands of adjustable rate mortgages that will re-adjust upward in the next few years. This will increase monthly mortgage payments. Many will not be able to pay for a variety of reasons: job loss, bought the property for investment, etc. These properties will go into default and thus bring down the values of more mortgage-backed securities that are owned by financial firms around the world.
The thought process for these mortgages was much like subprime – that housing prices will continue to go up so it won’t matter.
Could more write-downs be in the future?
These mortgages fall back to the main overarching idea that we began our business journalism studies with: Americans have been keeping up their standard of living with debt for years with little saving. And now the bursting of this bubble will hit another group of mortgages – according to this story.
But the piece’s kicker does end on a positive note as the asset manager Whitney Tilson, who leads the dourness of the piece, says it’s a great time to invest in stocks?
“Does that mean that the stock market is gonna continue plunging as we’ve seen the last several months?” Pelley asks.
“Actually we’re the most bullish we’ve been in 10 years of managing money. And the reason is because the stock market, for the first time I can say this, in years, has finally figured out how bad things are going to be. And the stock market is forward looking. And with U.S. stocks down nearly 50 percent from their highs, we’re actually finding bargains galore. We think corporate America’s on sale,” Tilson says.