Round 1: Subprimes. What’s Round 2? Oh, This Will Get Nasty
I don’t particularly like the show 60 Minutes, but when it’s airing I will often turn it on in the background. It’s a decent resource for trend domaining with it’s focus on current events and all. This past Sundays episode made me turn my head though.
You see, a trend I predicted back in April and publicly mentioned back in July is fixing to hit it real big. So big, in fact, that it was the main focus on 60 Minutes. And If you browse over to their main site, it’s also on the front page. I strongly recommend reading the article.
I first mentioned it back in July during the second part of my interview with Neal Voron of Fractional Domaining. I said:
A trend I haven’t posted about is option ARMs. I believe these are the next bust after subprimes. One major difference is that option ARMs are usually used by people with higher incomes. I own about 6 related domains including OptionARMMeltdown.com and OptionARM.info.
I was so sure that this trend would hit real big that I bought 6 names related to it, which is something I’ve never done with a trend, and haven’t done since.
Option ARMs were popular during the same time frame as subprimes: 2004 through 2007. But because it takes roughly one to four years for the teaser rate to disappear, the crash is being delayed. And if you are not on top of your finances, and many people who took this type of loan aren’t, you will begin feeling it soon.
60 Minutes estimated the damage of the subprimes to be about $1 trillion. They guesstimate the damages of Alt-A loans will be about $1 trillion and Option ARMs to be about $500 billion, or more. They predicted that at least 50% of all Option ARM loans will default, and that 70% is a more likely number. Why so high? People are defaulting now… on the teaser rates.
I also knew about the Alt-A loans, but felt it was too difficult to predict what kind of domain would prove valuable for a name like Alt-A. Alt-ALoans.com? AltALoans.com? Alt-A-Loans.com? I didn’t even bother; perhaps because I’m not the biggest hyphenated domain name fan.
So subprime loans were round 1. Round 2 may last one to four years; it will begin around April of 2009 and peak in January of 2010. It will be rough.
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2 Responses to “Round 1: Subprimes. What’s Round 2? Oh, This Will Get Nasty”
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I’m trying to figure out the point of this story with regard to option arm and alt a names?
I’m not sure I understand the opportunity/value proposition that you seem to point to in your article.
These types of loans are long gone. They have been for almost 1 year now.
What is your strategy for monetizing a product based name (option arms, alt-a, etc) that is now basically extinct from an availability standpoint? Is it providing information for people that have these loans? Letting them know they can no longer get financing in many cases? Because lenders sure as heck don’t offer these products anymore and will not for a very, very long time - if ever.
Since the consumer/borrower is now keenly aware that these “exotic” loans are gone - why would they search for them???
Anyone familiar with what is currently happening in real estate knows that the game of 2000 - 2006 is now over. As long as housing supply exceeds demand and credit remains much more difficult to come by, values will continue to soften. In addition - those mortgage holders in question who could so easily acquire mortgage financing through alternative means (subrime, alt-a, etc.) can no longer qualify to do so. In essence - those folks are now completely locked out of the housing/mortgage market UNLESS they can evidence income, assets, and good credit.
Basically - b/c of the reckless, greedy appetite of Wall Street to buy these loans and repackage/resell them to their investors as MBS, we are now left with 30-40% of the current housing market being locked out of the market.
The investors in these securities are now gone, gone, gone.
The individual borrowers can’t refinance and they can’t sell and buy another home b/c they simply can no longer qualify for a home loan UNLESS they can now evidence income, assets, and good credit.
The commercial lending crush is coming in 2009.
Although i do think it will be noteworthy - I don’t believe that the Pay option and Alt A loans are going to suffer the massive losses (over 50%) that 60 minutes reports. However - these loans are gone for a very, very long time.
Many of these folks who have taken out these loans have very good/excellent credit and have the capacity/capability to continue to make the payments - provided the job market in this country does not implode.
***EDIT***
Option ARMs were given those with good credit AND those with bad credit (since their credit prevented them from getting a conventional loan). The key here was that these loans were given out while requiring little documentation. These loans allowed people to get homes that were greatly outside of their means. Then when the teaser rate ends and their monthly payment goes up as much as 30%-100%, they can’t afford it. Not many people can.
And you’re right, no one wants these loans anymore. And no one is giving them. That wouldn’t be the point of such a site. When the subprime meltdown hit, sites went up with info for people. Why should Option ARMs be any different? People aren’t searching to GET an Option ARM loan, they are searching to find what their options are. You say that people won’t search for these because they are gone, but that’s not what happened with subprime loans:
http://www.google.com/trends?q=subprime+loans
Now, I am in no way a financial wiz here. Not even close. But it must be quite obvious if I spotted this back in April.
Thanks for the comment!
-Scott
I think it’s pretty clear that anything that is going to be big and important and in the news results in opportunity in the domain space.. But these ‘ARMS’ are going to create a REALLY huge problem as they reset. They will likely set our entire financial recovery back a year or more. It dont get much bigger than that.
Silly me has an idea for a solution if interested:
tarpforeclosures.com/Solution .
And yes, there may even be a domain opportunities to help those looking to escape those mortgages their stuck in: ArmBreakers.com !