"A Second Mortgage Disaster on the Horizon?"

There are a few question marks in my mind that the story appears to ignore - mainly around the fact that the resets are to current market rates - and as the current market rates have now dropped considerably, the resets may not actually increase the loan repayments significantly. Those that reset earlier this year will be in trouble, but those that reset next year may not have the same issue.

Still have the problem that the underlying property value is not worth the loan value, so you still will have a number of people walking away from the loans, but I doubt that there will be as many as predicted.

 

I work with Financial software and while I don't know these types of loans, we do have what are called honeymoon loans here in Aust - similar concept - relatively low fixed rate start and then reset to current variable loan rates sometime into the loan - but always at the "current" rate.

Here in Aust, there has been a plateauing of house prices, with a slight fall at the high-end of prices. But the big difference is that most people here buy a house to live in, and we do not move as often as people in the US appear to do, so everyone just hunkered down as the rates went up, and now that rates are going down, people are breathing a little easier.

Most people who know finance are still worried - but more because the US downturn affects everyone. We have not had to bail anyone out, yet, and the Aust government has just handed out approx $1,000 per family to spend, but they can afford it because the Australian government has been running at a surplus for the last 5 or 6 years, so now we have some savings, as a country, to spend and get us over the poor times.

I know that some people have hit financial problems because they over extended on their borrowing, but the law here is that people cannot walk away from bad home loans, they have to work it out, or declare bankruptcy. We hear news that the shops are not selling as much in the lead up to Christmas, but my daughter, who works part time for a department store, is continually complaining how overworked she is lately. And judging by the local restaurant strip people are still going out - it was fully booked last Saturday - we had a family birthday dinner and I had trouble even making a booking for 5.