LIBOR Rate has shot up. Foreclosures to get worse in 2009.

[max]

LIBOR is an interest rate index. Adjustable mortgages (especially sub-prime) are tied to the LIBOR.

The subprime blowup happened when all the 2 year teaser payments expired and shot upward. Borrowers were suddenly unable to refinnace out due to diminished equity so they got stuck with payments they could not afford...foreclosures galore.

Now, here's the scary part. Those borrowers who did survive the rate hike after 2 years and are staying afloat, will get a readjustment every 6 months thereafter....tied to LIBOR rate.

Historically, LIBOR is not a volatile rate so each 6 month readjustment isnt a big deal (slightly up...slightly down).... But with the recent 100 basis point jump in the LIBOR....the strapped survivors of the first subprime rate hikes are about to get whacked again........ 2009 will blow 2008 away when it comes to foreclosures and bad wall street paper.

The amount of new mortgage resets due for 2009, as well as repeat 6 month LIBOR UPWARD resets is massive. We aint seen nuthin yet.

 

[JAHOGS]

LIBOR is the average interest rate that banks charge each other for eurodollar loans. If it has a high spread over equivalent-term Treasuries, it means lenders are charging a lot to take on any degree of risk. It means they perceive other banks' risk of failure is higher than usual. This move in LIBOR should be temporary. It is unprecedented in magnitude, absolutely off the charts as an outlier.

LIBOR should normalize if the efforts to stabilize the system do any good. The reason why so many consumer credit rates hinge off some duration of LIBOR is that traditionally LIBOR has tracked Treasuries very nicely, and also added in 50-100 bp risk premium. Look at what has happened to the spread between LIBOR and Treasury bills:

http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP:IND

Today isn't on that chart. The TED spread is over 400 bp at this moment. It's nuts, but it won't last. It can't.

 

[max]

LIBOR is the average interest rate that banks charge ...
The TED spread is over 400 bp at this moment. It's nuts, but it won't last. It can't.

I sure hope you're right...if it stays this high we'll have shantytowns popping up all over

 

[LibertyEagle]

Never fear. The gummit is thinking about buying mortgages, resetting them to the current market value of the house and resetting the interest rate charged.

Guess who will get to pay for all this....

 

[walt]

good maybe those morons will read documents before signing stuff that is too good to be true on the surface in the future.

 

[max]

good maybe those morons will read documents before signing stuff that is too good to be true on the surface in the future.

i agree that people should be accountable for their deeds....but beyond materialistic borrowers and greedy lenders lies the real mother spider...the FED and its money creation schemes which sent out misleading signals to investors, lenders, and borrowers alike that the "good times" would last forever.

Borrowers, lenders, and even Wall Street investors who bought the shit paper....are all to a degree the unwitting VICTIMS of bubble economics orchestrated by FED printing presses