More of Murdoch's WSJ's Fantasies: "Adjustable Rate Mortgages" and The Credit Crunch/ Housing Crash

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A WSJ Blog claims as “fact “:

“Fact 1: Resets of adjustable-rate mortgages did not cause the
foreclosure crisis. The authors find that the 84% of these borrowers
who went into foreclosure were making the same payment when they first
defaulted as when they took out their loan. The conclusion: adjustable-
rate loans performed worse than fixed-rate loans because they
attracted less creditworthy borrowers, “not because of something
inherent in the ARM contract itself.””

http://blogs.wsj.com/economics/2012/05/04/twelve-facts-that-may-surprise-you-about-the-housing-bust/

Such “reasoning” assumes that a 16% default in ARMS LEADING the
default curve in fixed rate mortgages ( see charts at site below)
contribution to the the subsequent debacle was proportional to it’s
percentage of the market.

A percussion cap or primer is not an appreciable portion of the
explosive charge in a cartridge or shotgun shell. Nor is a blasting
cap a large part of the explosives it's activation can detonate.
Just so, Adjustible Rate Mortgages can act as the primer for a housing
bust by a chain reaction of credit reduction/destruction, housing and
other resulting busts. Once the effects spread far
enough in the economy payments on fixed rate mortgages could not be
made by an increasingly unemployed population that could no longer
bailout via sales ( underwater).

http://firsttuesdayjournal.com/the-iron-grip-of-arms-on-california-real-estate/

Recall that California is a not inconsequential part of the U.S
Economy.

Common sense would suggest that racheting mortgage payments rates up
faster than the income of a sufficient number of normal buyers makes
for a far more unstable portion of the market - whose collapse can
have a shattering effect upon the whole .

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