Are You Ready for the Next Mortgage Crisis 2010?

Originally posted at the next mortgage crisis.

The United States sub-prime mortgage crisis 2009 is behind us.  But an Option ARM mortgage crisis 2010 is on the way.

The United States economy appears to be improving.  Housing sales continue to rise.  Home prices have stabilized in many areas of the country.  Foreclosures have slowed dramatically.

The economy grew in the third quarter by a revised 2.8% (down from an original 3.5%).  

The Conference Board just published the Leading Economic Indicator (LEI) numbers for October.  They showed a 4.2% increase, the seventh month in a row that an increase was reported.  The LEI is a good indicator of the direction in the economy.  

Federal Reserve Chairman Ben Bernanke is boasting that his monetary policies have brought our country from the brink of economic disaster.
 

But let’s take a look at the last few years.  It is quite obvious that the Fed had no clue that their low interest rates and accommodative policies were major factors in creating the housing real estate bubble.

When the housing real estate bubble burst, the Fed grossly underestimated the severity of the crisis.  In 2008. Bernanke said the housing market issue was contained and would not be a problem. Later he stated that the total losses from the debt crisis would not exceed $100 billion and could be written off.  We all know that these losses were far greater.  If you followed his advice in the stock market, you would have lost a bundle of money. 

After the federal government bank stress tests were completed earlier this year, Bernanke stated that, “most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized.”  So why do these banks continue to hoard the money the federal government gives them?

So how in the world can we trust this group to get us out of the economic crisis?  It’s quite obvious that Bernanke does not trust natural, free economic forces to bring us out of this downturn.  

Instead, he believes that only he, in all his wisdom, can manipulate the economy in a way that allows us to recover.  His track record is not good.
 

Many economic numbers indicate an improving economy.  So here is the big question.  Why are the policies of the Federal Reserve so accommodative when the economy appears to be improving?

The chart below shows that we are beyond the United States sub-prime mortgage crisis 2009.  However another mortgage crisis is coming.  During the period between September – December, 2009, we are actually at the lowest level of the mortgage reset problem.  

But look what lies ahead.  A huge number of Alt-A and Option-ARM mortgages are due to reset from the second quarter of 2010 through the fourth quarter of 2011.

These resets will be at much higher rates resulting in more delinquencies and foreclosures.  Many of these Alt-A and Option-ARM mortgages were taken out during the peak of the housing real estate bubble.  This will result in extremely high loan to value ratios.  This will only aggravate the foreclosure problem.

The result will be further write-downs in the banking sector.  This is why Bernanke is keeping short term interest rates so low.  He knows that the next  mortgage crisis 2010 will create huge financial problems for the banks.  But he is keeping this information from an unsuspecting public.
 

Corporate professionals are keeping a close eye on the economic recovery. 

For those who have lost jobs, a strong recovery will improve their chance of finding employment.

Others professionals are hoping a strong recovery will help stabilize their companies.

The President Obama administration claims that his policies have brought us to a point of economic stability and recovery.  The Federal Reserve proudly asserts control over the economy through their manipulative monetary policies.

My advice is to be wary of statements made by the administration and the Fed.  I do hope that their words prove to be accurate.  But the economic data I study indicates more problems ahead.  

Having a job backup plan, a Plan B strategy, makes complete sense to me in this uncertain economy.

Scott Hubbard has retired from 25 years as a Chief Financial Officer in corporate America.  He now teaches corporate professionals and network marketers how to start a successful internet marketing business.

He promotes a lucrative, fun, moderately priced travel business opportunity.  You can then reach him toll free at 877-878-4036 or by email at Scott@ScottHubbard-Consulting.com.