In 2007, Credit Suisse achieved something of a coup in what was then a much smaller, less mainstream financial blogosphere.
Analysts at the bank produced the following chart, which quickly (and uniquely) went viral, appearing on Calculated Risk and a slew of other housing and financial blogs. The chart even made a cameo appearance in the pages of an IMF report on ‘risks to global financial stability’.
Credit Suisse's famous chart
Various versions of the chart have percolated ever since – a more recent edition popped up in an FT graphic accompanying a downbeat housing story in 2009; another in a cautiously optimistic BusinessWeek piece.
Here, via SNL Financial, is the most bleeding-edge version of what is possibly the world’s most popular finance-related graphic that’s not drawn from the pixels of LolFed (click to enlarge):
Credit Suisse, via SNL Financial
Here’s more from SNL, who spoke to Credit Suisse about their most recent conclusions (including, as the chart shows, that more than $1,100bn of US ARM loans – adjustable rate mortgages – will either reset or recast between 2010 and 2012).
Emphasis FT Alphaville’s:
Though option ARMs have grabbed some headlines recently, they are not the primary concern for analysts such as [Chandrajit] Bhattacharya [head of non-agency RMBS and ABS strategy at Credit Suisse] and Greg McBride, senior financial analyst at Bankrate.com. McBride told SNL he is more concerned about ARMs that do not even show up on Credit Suisse’s chart.
Borrowers who already have seen their ARMs reset might be sitting on their hands and not refinancing into fixed-rate products, McBride said. Because mortgage rates have been so low recently, resets can actually lower, not raise, monthly payments. When that happens, borrowers might feel little urge to refinance into a fixed-rate product that would cost more per month. Alternatively, ARM borrowers might simply struggle to qualify for a refinance because of low or negative equity.
…
Bhattacharya said the ARM reset chart does not portend the all-out doom some housing bears infer. For one, option ARMs are concentrated in just a few states. A Fitch Ratings study from Sept. 8, 2009, reported that three-quarters of all option ARMs were in California, Florida, Nevada and Arizona.
…
McBride is worried about the prime ARMs posted in the Credit Suisse chart. The chart shows $10 billion to $15 billion resetting each month. If a substantial number of those borrowers do not refinance and interest rates shoot up, McBride said he could see $50 billion worth of prime ARMs facing payment shocks each month by 2011.
Small wonder Fannie Mae and Freddie Mac on Monday announced an extension to the HARP program, which is designed to encourage homeowners to refinance loans on houses facing falling, or even negative equity.
Related links:
Nightmare mortgages – BusinessWeek (2006)
Reset Chart from Credit Suisse has a Major Error – Healdsburg Housing Bubble
Option ARMageddon rears its ugly head – FT Alphaville
$134bn of US Option ARM RMBS to recast by 2011, Fitch says – FT Alphaville