We cannot blame the credit crisis on poor people any longer, as if anyone actually believed that anyway. Rating agency Moody’s said last month that it was revising upwards the expected losses on 90% of Alt-A mortgage securities. It describes the collapse as ‘unprecedented for its asset class’. These are not the subprime households who would probably have been better off without a mortgage in the first place. Alt-A borrowers tend to be middle-income earners.

The first Alt-A resets begin later this year. Other factors, such as a slow economy, could impact Alt-A borrowers well before their resets hit. You can watch an interesting interview from “60 Minutes” to form your own opinion:

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One out of every five Americans no owes more on their home than it is worth, according to research involving JPMorgan Chase’s decision to temporarily halt foreclosures. While that certainly is good news for many, it is not good news for investors and banks. “Prime mortgages, especially where there are pay-option ARMs involved, (are) becoming a broader issue,” said Charles Scharf, head of retail financial services at JPMorgan.

And as bright outlooks go, the good news continues to roll in with news that credit card banks are considering a plan to forgive up to forty percent of credit card debt for some credit card holders. Remember, if you will, that the same credit card banks strongly giving Americans a “credit card bill of rights” so once again we wonder what their motive is.

As for JPMorgan’s Scharf, who would have ever thought that picking your own payment on an option Arm that increases the balance owed on a home was a good idea in the first place?

We also wonder about the fast drop in oil and gasoline prices. Was it a perfect storm? Failures, writeoffs, markdowns, gasoline over $4 a gallon, foreclosures, high food and energy prices, and now – all of a sudden – we see cheaper gasoline, and offer to forgive some credit card debt, and a temporary halt to foreclosures! What is going on?

Like a “pick your payment” option ARM, if it seems too good to be true, perhaps it is.

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The mortgage crisis of 2007 worsens and threatens to tip the economy into a recession. Many are asking where was Washington? Washington was in the same place as always, the question regarding what they were doing, and why, are the issues at the heart of the matter. Of greater interest to me are political contributions and lobbying expenses in the years leading up to this point.

With help from OpenSecrets.org we compiled the data and wrote an extensive article. We show the breakdown by contributors, and who they gave their money to. If there is a moral to this story, it is money talks. Big money gets heard and things change. It would be nice if there was a coalition of real people. I know we have the right to vote, but big businesses are courting our politicians and buying influence every day of the year.

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In the U.K. a foreclosure is called a reposession. Market analysis shows U.K. mortgage issues mirroring trends in the United States, as home owners find it difficult to refinance. The Council of Mortgage Lenders said the global credit crunch was exacerbating trends that were already emerging in the housing market. It said it had already been expecting arrears and possessions to rise, but the situation would be worse than previously expected because of the tighter lending criteria many mortgage lenders are now imposing.

The number of people whose homes are repossessed looks set to soar next year to levels not seen since the 1990s house price crash, it was predicted. The CML warned the five interest rate rises seen since the summer of 2006 would contribute to a 50% jump in the number of homes that are repossessed during 2008. It seems like Americans are not the only ones singing the mortgage blues. Is this a sign of a homogenized global community, or perhaps just profit takers in a run-away mortgage lending industry?

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Not too long ago the staff at Mortgage Blues warned about option arms. Now these home loans are beginning to worry borrowers and lenders. One real possibility is that borrowers are behind on their mortgage as they keep up with their credit card payments. Of course the opposite might be true. But as soon as credit card rates skyrocket to the maximum allowed by law the bubble might burst for these home owners.

Many option ARMs are scheduled to reset to higher payments this year and next — an estimated half trillion dollars worth during 2006 alone, according to mortgage giant Freddie Mac. Federal and state financial institution regulators, along with some prominent lenders, worry that not all borrowers now making minimum payments are aware of the size of the monthly payment increases they may soon face. Worse yet, some of these loans were made to people who were on the financial bubble to begin with: their credit was stretched to make even the minimum payments necessary to afford the house they purchased.

To assume that all borrowers currently making the minimum payment can absorb huge increases is not realistic.

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Subprime lending once hurt the elderly in the United States. It only took three more years for subprime to hurt all borrowers and the entire world economy. Back in 2004 subprime was not necessarily predatory lending. Others argued that mortgage fraud became predatory lending, which then evolved into subprime. Regardless of the position you take it is clear that intervention and prevention at the federal level was missing. Here is part of the 2004 FTC testimony:

In 2004 the FTC told the Senate Committee on Aging: “A recent study found that the population of subprime borrowers tends to be older than the population of prime borrowers. More than a quarter of subprime borrowers are 55 years of age or older, compared to only 14% of prime borrowers. Therefore, while older Americans may have benefitted more from the expansion of the subprime market, they also may have suffered more injury from deceptive practices in the market. The Commission (FTC) is not aware of any evidence that subprime lenders are engaging in illegal practices that specifically target the elderly. In our experience, the illegal practices cut across demographic groups. Nevertheless, these illegal practices can be particularly devastating to seniors.”

Editor’s Note: Little known to the general public was that in Florida Madie Bell Wilson, 89, was evicted from her Miami home. She had taken out a $27,000 home-equity loan from Household International, thinking it was a home repair grant that did not have to be paid back. The case piqued Florida officials� interests and helped lead to the $484 million multi-state predatory lending settlement. Household International ultimately forgave Madie Wilson’s loan but the damage was done. HSBC bought Household International and renamed the company HSBC Finance Corporation. (see more)

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A reset is when an adjustable rate mortgage goes to the next interest rate level, thus increasing the mortgage payment. Adjustable rate mortgage resets through the end of July 2007 were $197 billion (USD). That is less than what is projected for February and March – and just February and March – of 2008. The first six months of next year will see more than the total for 2007 or $521 billion. The number of foreclosures is due to rise dramatically from the already high current levels, putting more homes into a weak housing environment. So why not refinance instead? Here’s why that may be impossible.

Many homeowners will be upside down in their homes by 2008. Prices are dropping and payments on ARM’s did litle or nothing to reduce principle. There will be no traditional 30 year mortgage because there is not going to be enough equity to get a traditional mortgage.

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Roger Miller (see) released a song called “When a house is not a home”, and it is was recently re-released by talented musician Bobby Flores on his CD called “Too Many Rivers.” What is my point?

In 2006 about $3 trillion (USD) represented the sum total of all United States mortgages. Of that total, about 20 percent were ‘Alt-A’ loans for second homes, vacation homes, and similar. Were these houses actually homes for grandmas across the nation? Default on grandma’s home is a lot different than default on a flip, fixer-upper, or rental house. My point is that the house is not your primary home. These are not automatically subprime mortgages by definition.

Another 20 percent of the $3 trillion were subprime. That’s a totally different category, based on credit score, risk, and other factors. How do you tell the difference? If you already pay mortgages on five homes, and you told the mortgage company those homes are investment properties, and then you buy grandma a house, it may be subprime. When your house is not a home for you and your family you should be honest with any financing, refinancing, or the financing involved with purchasing the home you are going to live in. After all you are telling the IRS that those are investment properties, aren’t you?

By March of 2007 one study shows $90 million of Alt-A mortgages were in default, while $450 million of subprime mortgages were in default. Here at Mortgage Blues we can say without reservation that defaults have spread from subprime to Alt-A borrowers. When 20 percent of three trillion are ALt-A, and 20 percent of three trillion are subprime, compare 90 million to 450 million and you can easily see the risk factors and differences between the two classifications. Mortgage lenders might be singing the blues because their classification system was flawed.

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