While roaming the blogosphere, I came across this article on the Consumerist – Graphs: Monthly Mortgage Rate Resets, 2007-2016. (Originally from Credit Slips – Is This Just a "Sub-Prime" Mortgage Crisis?)

The article gives a compelling warning that in coming years there’s going to be a lot of upset with the various mortgage and loan source companies.

Short Term Woes

I think that this year is going to be particularly difficult for those sub-prime borrowers that are going to see their rates increase.

From the graph on the side, in 2008 the sub-prime market is in for a LOT of adjustment before the storm passes to the Option adjustable/Alt-A type loans.

With rumors of recession, and semi-weak employment numbers floating around, all of this continuing bad news is undoubtedly going to eat away at consumer confidence.

Housing prices have already taken a considerable beating because of the high number of foreclosures and loan defaults. With even more sub-primes facing a rate increase, it could be another year of record house foreclosures again.

Long Term Instability

Even though fundamentally the U.S. economy is strong, the markets still react to investors’ fears. Too many investors selling, can cause a selloff that drives stock prices downward worldwide. We’ve seen similar scares earlier this year with the existing subprime meltdown reactions.

If the graph is any indicator, it appears that there’s a number of ‘waves’ of rate-resets that the market and investment community is going to have to weather. Just when the effects of one wave tapers off, another looms ready to excite the market all over again.

What to Do When the Sky is Falling

Since there’s nothing the individual investor can do to forestall these rate resets, the best thing you can do is to keep it in mind; Get your own finances in order if you have one of these Sub-Prime rates with a pending increase, and carefully watch your investments this year, especially for those markets affected by loan defaults (financial, construction, real estate).

Other than that, it’s just batten down the hatches and ride out the storm.

Do you have any contingencies or strategies to deal with the continuing sub-prime issues? If so, please leave us a comment or two.