The Other Shoe

Still reeling from the first shockwave of the subprime collapse? Get ready for the second. Bloomberg (08.21.07):

"U.S. homes in the foreclosure process almost doubled in July from a year earlier as variable-rate mortgages reset higher, leaving more homeowners unable to make their payments, according to RealtyTrac Inc., a seller of foreclosure data."

U.S. Home Foreclosures Almost Doubled in July, RealtyTrac Says

The growing glut. "U.S. home sales dropped to a four-year low in the second quarter and prices fell in a third of U.S. cities, according to the National Association of Realtors. Foreclosure rates are one indication of how many more homes may flood the falling market as banks sell those they take over. In June, a nearly nine-month supply of houses were on the market, up from a four-and-a half-month supply two years ago."

"Defaults on subprime mortgages, those to buyers with poor or limited credit histories, will continue driving up foreclosures through 2008, [RealtyTrac's executive VP for marketing Rick Sharga] said, citing pending interest changes on adjustable-rate loans homeowners took out in 2005 and 2006."

"'If they default like the subprimes have been defaulting this year, we won't be out of the woods for another nine to 12 months,' he said."

If we're lucky that is.