<\/p>\n
Groundbreaker<\/p>\n
Nothing looked wrong in the summer of 2006. Home prices had risen for the better part of a decade. Delinquencies were near historic lows. Credit spreads were tight, the ratings held, and the securitization machine hummed. If you had asked a hundred people on a trading desk whether the American mortgage market was months from seizing, most would have laughed.<\/p>\n
Millions of subprime borrowers were, at that moment, paying the low introductory rate on a two-year adjustable rate mortgage – the 2\/28 ARM. A low fixed-rate for two years, then the rate\u00a0reset<\/em>\u00a0to a payment 30% to 50% higher. During those first two years the loan performed beautifully: the borrower paid, the servicer collected, and the bond paid its coupon.\u00a0Nothing looked wrong because the whole complex – housing, mortgages, securitization – was sitting inside the teaser period.<\/strong><\/p>\n Every ARM reset was known, dated, and contractually inevitable from the moment of origination. Aggregate those reset schedules and you get the most damning exhibit of the era:\u00a0the reset wall.<\/em>\u00a0Roughly a trillion dollars of adjustable-rate mortgages were contractually set to reset across 2007 and 2008 – thirty to forty billion dollars a month at the peak.\u00a0Credit Suisse published the chart in March 2007. The IMF reprinted it. It circulated on every trading floor in New York and London.<\/strong><\/p>\n Continue reading here:<\/p>\n The Teaser Period: Why the AI Boom Is Hitting a Reset Wall<\/a><\/p><\/blockquote>\n