The Second Wave Is Upon Us

LATimes (01.13.08):

"The no-worries lending that inflated the housing bubble is resulting in a flood of soured option-ARM loans, adjustable-rate mortgages that allow borrowers to pay so little every month that their loan balances rise rather than fall, sometimes sharply.

Numbers from industry trackers suggest that these borrowers -- most of whom boast respectable and often top-tier credit scores and appear to have substantial incomes and home equity -- are starting to create a second tide of defaults for lenders swamped by the meltdown in sub-prime loans made to people with bad credit or overstretched finances."

Adjustable loans spur new worries

Our buddies again. "Calabasas-based Countrywide Financial Corp., the top option ARM lender, will be hit hard. Already reeling from the sub-prime mess, Countrywide was rescued from possible bankruptcy last week by Bank of America Corp., which agreed to acquire it for about $4 billion."

"The option ARM trouble stems from the loose lending practices that inundated the sub-prime business. Loans often were granted on the basis of stated income, not proof of a borrower's income, giving rise to their nickname, 'liar's loans.'"

Our mortgage banking buddies also called 'em NINJA loans, too. As in NoIncome, NoJob, NoAssets. Ha, ha. Pretty funny, huh.

And it's gonna be with us for a while. Next three years for sure (from the IMF, via Calculated Risk):

Have Fun!!