Scary Bear Housing Stats

-34% of homeowners do not know what kind of mortgage they have (Bankrate.com)
-$1.3 trillion in mortgage resets likely to hit the US in 2007
-$800 million of resets expected in July alone
-monthly mortgages payments likely to go up 10%-50%
-a $200,000 note taken out in 2004 at 4.5% would likely rise to 7.5% this year raising monthly payment from $750 to $1,440. no impact on consumer spending, think again....


First shoe (slight impact to overall economy)
late 2006/early 2007
- many sub prime lenders went bankrupt or were forced to sell portfolios (at a deep discount) after delinquencies skyrocketed
- Wall Street firms to cut off funding of these risky notes
- ~90 sub prime lenders have shut their doors
-lending standards and access to capital have tightened

Second Shoe

From the Fed
Since reaching a cyclical low of 0.70 percent at the middle of
last year, the percent of insured institutions’ loans that are
non current (90 days or more past due or in non accrual status)
has risen in each succeeding quarter. At the end of March,
the non current rate stood at 0.83 percent, its highest level in
two and a half years. During the quarter, non current loans
increased by $4.0 billion (7.0 percent). Non current levels
increased in most loan categories during the first quarter, with
the largest increases occurring in real estate loans. Non current
residential mortgage loans increased by $1.7 billion (7.3
percent), while non current construction and development
loans rose by $1.5 billion (36.1 percent). The rising trend in
non current loans was fairly widespread; almost half of all
institutions (45.7 percent) saw their non current loans
increase in the first quarter. The percentage of 1-4 family residential
mortgage loans that were non current rose from 1.05
percent to 1.13 percent during the quarter. This is the highest
non current rate for residential mortgage loans since
midyear 1994.

Additionally, provisions for loan losses increased 54% y/y, as delinquencies and charge offs increased 48%.

Source:
http://www2.fdic.gov/qbp/2007mar/qbp.pdf


Third Shoe
-1. increased consumer and mortgage debt driven by rising interest rates and increasing resets
-2. access to credit becoming tighter as Wall Street lessens tolerance for collateralized pain and legislation pressures lax rules
-3.consumer spending likely to fall as increased mortgage payments, higher gas prices and quickly rising health care costs crimp the consumer who is already 300% levered.
4. Recession 2008?