Mortgage Resets on the Horizon

Though estimates vary, some industry experts say that at least a half a trillion dollars' worth of loans with reduced initial payment terms are scheduled to reset during the coming year.

Many of these mortgages carry "negative amortization" features that permit borrowers to pile on additional debt beyond their original balance, and make minimal payments for the first several years. Once the initial period is over, however, payments can shoot up by 100% or more as the loan resets.

This is bad, bad news. A lot of people who have odd-ball loans like negative amortization mortgages took on this level of debt because it was the only way they could get into a house and they are barely making their minimum payment. When their payment doubles, what are they going to do? Sell their homes? Surprise. Housing prices are dropping.

What do you do when you bought the house in the last two years at the top of the market and you have to sell it for less than you owe on the mortgage? If this starts to happen, do the prices of houses go up? Sorry.

A situation like this could spiral into recession. Let's pray that this doesn't happen.