A Near Perfect Storm: The US Housing Market

Perfect_storm_1796069_2Washington Mutual’s Chairman and CEO, Kerry Killinger, referred to the U.S. housing market as "a near perfect storm".

Killinger said at a a Lehman Brothers financial services conference:

"the combination of rising delinquencies, higher foreclosures, more housing inventory, increasing interest rates on many mortgages and greatly reduced availability of mortgages due to limited liquidity is creating what we call a near perfect storm".

On a side note, both Washington Mutual and Countrywide have been aggressive "dealers" in the Option ARM markets.   Washington Mutual’s flyer explaining Option ARMs states "It’s both easy and smart".   If you’re a reader of Mortgage Porter, you know I disagree.   Option ARMs are not easy and not smart for a majority of home owners.   

"Roughly 28% of Washington Mutual’s loans held are in these riskier option-ARM mortgage products, according to Plesser. By contrast, pay-option loans comprise more than 40% of Countrywide’s interest-earning assets".  According to this article in Business Week.

What should you do to weather out the storm?  Be prepared.  Have a plan.   Contact your Mortgage Professional today


  1. Rhonda:

    I find it interesting that the biggest dealers of the so-called exotic loans are large mortgage banks with huge retail operations such as Wamu and Countrywide. However, if you listen to politicians and the media you would think all these loans were invented by mortgage brokers!

    I remember a WAMU AE coming into our office several years ago hawking the 3% YSP on Option ARMS. I couldn’t get him to explain how this loan would be benefit anyone other than very savvy equity rich investors/borrowers who are looking for cash-flow. It always kept coming back to the YSP.


  2. Russ, we had the same experience. AE’s from these companies would leave shaking their heads at us that we were not selling option ARMs. I remember one AE saying something along the lines of “you’re the only one’s NOT doing these loans (I don’t believe that BTW); don’t you realize how much $$ you can make off of them?”

    I’ll bet the AEs were paid a higher commission for pushing this product.

    It is frustrating that “mortgage brokers” are sometimes made out to be the bad guy when it’s the banks who have been dishing this stuff out to the consumers and to the brokers.

  3. mortgage broker in California says

    If some scholarly university professors think that the negative amortizing-type loan known as the option ARM (adjustible rate mortgage) is an excellent loan product, why should mortgage brokers be mercilessly pilloried for having offering it?

    The option ARM has been pushed heavily by savings and loans, and retail banks. Here is a list of some of the heavy past and present pushers of this product. If one must play the blame game, let’s include these mainstream lenders:

    Home Savings
    Coast Federal
    American Savings
    World Savings
    Washington Mutual (invented the Option ARM in 1988)
    Countrywide Financial (it’s over 40% of their loan portfolio according to article referred to in this blog)

    One last thing. This type of loan has been available for buyers for something like 20 years. If it is so terrible (now equated with sub-prime loans as far as harm to homeowners are concerned), where has been all the consumer and legislative and Real Estate industry (Realtor) concern over the last 20 years? Realtors for the most part have always loved these option ARMS and directed their clients towards the banks and savings and loans which offered them, and away from the mortgage brokers who were at that time doing mostly fixed rate loans or fully amortizing ARMS.

    I do agree with many of the various negative concerns about this loan. It isn’t for everybody, but let’s look at it in context.


  4. Thanks, Mortgage Broker in California. I do agree that there are no bad mortgages…there are bad loan originators and/or bad advice.

    Last week, I’ve been trying to help two of my clients who went elsewhere to refi and opted for Option ARMs based on the advice of the LO they went to.

    Client A is losing sleep over the variable rate and his disappearing equity.

    Client B may not have enough equity to refi out of her Option ARM.

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