Just today the Fed met and lowered interest rates to historic lows, and they also announced plans to discuss purchasing bad securitized loans and potentially treasury bonds. As a result there was a rally on the stock market with this news.
Why is the fed taking such bold moves? This…
That seriously huge green peak was the height of the subprime resets. We all know the outcome of that. There will be a nice little breather in 2009 before the next wave of resets occurs with Alt-A and Option loans. As you can see that set of resets is just as nasty looking as the subprime resets.
If the Fed doesn’t take bold moves, the housing market is going to get a lot worse as we potentially head into another wave of foreclosures as holders of Alt-A and option loans find their loans resetting and unaffordable. The large concern about Alt-A is that many of those loans are small business owners. The Alt-A loan is for people that don’t gave good documentation about their income because they own their own businesses. This next wave could take out many small businesses as owners may need to pull more from their business to make their mortgage payments.
Unfortunately the economy doesn’t turn on a dime. Whether or not these moves can stem the next wave or at least dull the impact remains to be seen.