Apparently, the anticipated increase in the number of mortgage resets in 2010 has a number of people worried, although none of them seem to be named Bernanke, Geithner, or Summers. I did a little searching on Google News today and found lots of people are noticing. Too bad the major media haven't noticed.

Jim Nelson at istockanalyst.com writes that he expects the dollar to skyrocket in value in 2010. Why? Mortgage resets will cause this to happen. As I previously discussed, 2010 should be a year when mortgage resets increase after the 2009 lull, setting us up for another peak in 2011 (like the sub-primes in 2008 which led to the initial crisis). However, Nelson thinks it's going to be even worse than that. He wrote Wednesday, “Instead of resetting as expected after the first five years, many option ARMs are so negatively amortized that they are hitting their automatic reset cap.” Thus, because the dollar rose in 2008 when the crisis hit (as investors sought protection in the world's foundational currency), Nelson thinks it will happen again in 2010. His short-term analysis is probably correct, since the immediate impact of such a scenario is deflationary, although the longer the Fed keeps us at near-zero interest rates, and the more bad mortgage portfolios the Fed buys up, the more that the high risk of inflation will face us in the longer term. “When this next domino tips too far,” he wrote, “we'll have quite a mess on our hands.”

Contrast Nelson's analysis with Fannie Mae's predictions for 2010. According to UPI:

“The mortgage giant predicts that home sales and new residential construction will boast double digit gains in 2010 compared to a disappointing performance in 2009. According to the forecast, existing home sales are expected to rise by 10 percent next year, compared to an estimated 3.1 percent gain this year, while new home sales are projected to rise by 26 percent in 2010 compared to an estimated 19 percent drop in sales this year. Similarly, new residential construction is expected to increase 35 percent in the New Year compared with a 38 percent drop in starts in 2009.”

Yet, within the same report, Fannie Mae also predicts that mortgage originations (new contracts) will decrease by 33 percent because of an anticipated 52 percent decrease in refinancing. In other words, Fannie Mae doesn't expect consumers hit by the mortgage resets to successfully refinance before they get the bad news.

Mortgage default servicing industry magazine DSNews reports that the mortgage resets of 2010 will create a second mortgage crisis. The magazine also projects massive bank failures in 2010, saying that the FDIC will be twice as big as in 2009. The article notes that 133 banks failed in 2009 and another 552 currently appear on the FDIC's watch list of problem banks.

Jeff Nielsen writing at Seeking Alpha points out that all this is playing out under some enormously stressful condition which include:

U.S. mortgage defaults and delinquencies are at all-time record levels U.S. banks are holding millions of foreclosed properties off the market Millions more homes are already in the “foreclosure pipeline” U.S. unemployment continues to worsen (even the phony numbers) U.S. banks are still starving the economy of credit Record numbers of homeowners are already “underwater” A second, larger, worse spike in U.S. mortgage resets is about to begin Retiring baby-boomers need to sell at least $1 trillion in real estate

One disgruntled reader commented under Nielsen's article, “I hate this chart. I have seen the same damn one for years and years now. Provide me an updated charge reflecting which of those mortgages also were refi'd and then I'll read your article critically.” The chart he refers to, which Nielsen included in his article, is the Credit Suisse chart first published in 2007 showing two coming waves of mortgage resets peaking in 2008 and 2011. Since Credit Suisse hasn't updated the chart to reflect mortgage refinancing, no one has a more up-to-date chart to show. However, here's what we do know.

Shelby Bateson at examiner.com reports that as of September 30, 2009, only 116,677 loans have been refinanced under President Obama's HARP (Home Affordable Refinance Program) program. This was a program which was supposed to help millions of families avoid foreclosure (at taxpayer expense). Bateson points out that there has been no lack of applicants, but rather the banks themselves are unwilling to rewrite the loans.

It's likely that the banks don't want to rewrite these loans because to do so would force the banks to write down the loans' values as well, putting the banks themselves into jeopardy of FDIC takeover. I haven't seen anyone state this as a fact anywhere, but given the precarious health of the banking industry, this seems to me the likeliest scenario.

I'm glad that people are finally beginning to take notice of the mortgage resets. Unfortunately, with the financial leaders, the politicians, and the media all but ignoring the warning signs, this last-minute waking up is likely to be a case of too little, too late.

Walt Thiessen is the author of The Money Suckers, his new novel about the financial crisis.