Here it comes folks. I’ve been warning about this since October and believe me, I want to be wrong.
In April 2010, 50% of the adjustable jumbo-loans (mortgages over $417K) are set to adjust.
For the first two years of this foreclosure crisis, the lower and middle class residents of the Lehigh Valley bore the burden, but now the upper class homeowners are about to get hit.
This is how it is going to go down. 
Joe and Jane Homeowner have been paying a teaser rate of 2% or even just interest, resulting in a payment of $708 – $1570 per month.
The loans are going to reset, possibly to 6% or higher, resulting in a $1000 jump in payment. This is happening at the same time as salaries shrink.
Pressure on salaries and the increasing home payment will result in the homeowner dipping into their savings and when the savings dry up, they will fall behind.
Already the effects are being seen of this and the tidal wave hasn’t really hit yet.
What is going to happen when 50% of jumbo loans begin the reset process?
The housing crisis is going to get worse, that’s what, because instead of a recovering housing market we will have downward depression on home values as these McMansions go onto the market at a discounted price.
Yesterday, I sent emails to Senator Arlen Specter and Representative Charlie Dent, the text of that email is here.
So far, Representative Dent has responded with an auto-email message that he got my message… thanks for that.
Senator Specter’s office has done even less. Not even an auto-response saying I got the email. Hello Senator Specter, its 2010, its called Aweber, it costs $20 a month and is based in Pennsylvania, I think you can afford it.
I didn’t expect a quick response, although I was hopeful as Representative Dent at least has been responsive in the past.
So now I’ve decided to throw down the gauntlet. I’m not exactly Paul Revere riding through the city yelling the Red Coats are Coming! I’m just a local bankruptcy attorney who is fed up with the lack of meaningful action by Congress in response to this crisis. Instead they choose to drone on about Health Care, Cap and Trade, and exactly who is more evil, George Bush and the Republicans or Barack Obama and the Democrats. This is one instance where I think Monty Brewster was right but instead of voting for None of the Above I’m going to vote for all of the above.
So here is the gauntlet. 
Senator Specter has two potential opponents in 2010, Joe Sestak and Pat Toomey.
Representative Dent has two potential opponents in November, John Callahan and Jake Towne.
So our current Congressmen as of now have not replied to my email, lets see what their opponents have to say about it. Why can’t we have a meaningful bankruptcy overhaul in this economy.
I don’t know the answer to that question, but I do know that HAMP is not working. I do know that the only way to stop foreclosures is to actually stop foreclosures, and so far only bankruptcy can assure that foreclosures are stopped.
I will report back to you the responses I get here. Its time to turn the heat up and find out who the weasels actually are.
{ 1 trackback }
{ 2 comments… read them below or add one }
Dear Mr. Kutkowski -
Thank you for your note. While I will not comment on the timing, you are correct in your concerns on the residential mortgages. The gov’t has silently been nationalizing the entire mortgage industry, and the scenario you have mentioned is certainly possible. I would point out that all the government interventions have done is postpone the crash… and make it that much worse.
I am also highly concerned about the commercial mortgage markets (locally and nationally) and my gravest concern is actually tied to a currency (dollar) crisis, which will make everything else look like small potatoes.
Banks are holding many of these mortgages on balance sheets at fictionally-high values, and FASB accounting rules are a subject best left for a separate post. We must also remember that fractional reserve banking is dead, which has created a time period where banks pretty much “print” or create whatever money they need (see Part 1 and 2 here) http://towneforcongress.com/economy/fractional-reserve-banking-in-pictures-part-12
I wouldn’t mind discussing this with you in person to hear your thoughts, you appear to have done your homework. My initial thoughts on “fixing” the situation is that more government interventions may simply postpone and worsen the problem, but certainly sounding the alarm for fellow citizens is worthwhile. I can be reached at XXX-XXX-XXXX or jaketowne AT gmail DOT com. Tomorrow morning I will be in the Emmaus area and might be available in the afternoon. Thanks for reaching out.
PS – I am a constitutionalist but also a former engineer. Article 1 Section 8 reads “To establish… uniform Laws on the subject of Bankruptcies throughout the United States;” As I am a chemical engineer, talking to someone in your line of work would be helpful.
So Jake Towne is the first contender to respond with anything other than “thank you for writing.” I’m curious what other candidates have to say, but so far nothing. Its been almost a week. Jake Towne 1, Charlie Dent 0, John Callahan 0.