Is the worst over yet?

August 27th, 2007

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For the past week, volatility seems to be decreasing. Some investors believe that the recent falls and volatility was just a correction in an ongoing bull market. Has the correction ended? Before we declare the restoration of the bull trend, let us take a look at this graph (click on it to see its full size):

Value of adjustable rate mortgages due for reset

The red line shows where we are right now. As the graph shows, there are going to be more adjustable rate mortgages in the US that will have their mortgage rates reset in the coming months. That is, a lot more home loan borrowers will find that their mortgage rates will revert from the ?honey moon? rate to the standard rate. Therefore, more people are going to find that their mortgage expense will shoot up suddenly. When this happens, we can expect the rate of foreclosures and home loan debt defaults going to rise in the US. With the financial system already wobbly, it is going to further destablise in the months to come.