"What are the 3 biggest challenges we are going to face in the 2010 housing market?" A good friend and VP at SunTrust Bank, Bill Peele, asked me this very question at lunch today. My reply was as follows:

1) Unemployment over 10% and around 20% if you account for the “Under-employed” or those who have given up looking.

2) Fannie Mae and Freddie Mac are still in trouble receiving over $500 billion dollars of Bail out money.

3) Payment Option ARMs are due to reset within the next 2 years with most borrowers being unable or unwilling to take on a higher payment.

You can read more information from NG Realty Group and stay up to date with market news. I feel that Challenge #3 is the biggest problem of the 3 numbered challenges. Subprime mortgages almost brought down the country and financial system in 2007 and 2008 followed closely by Alt-A Mortgages (No Documentation, Stated Loans, and Little Documentation loans). This year starts the massive challenge of dealing with the Payment Option ARM loans or the so called “Pick a Payment Loan” that Wachovia was still running commercials on television in late 2008. If you are unfamiliar with this type of loan, the borrower gets a choice of whether they want to make a full payment, an Interest Only payment, or a “Minimum monthly payment”. The Minimum monthly payment is the MAJOR issue as in most cases it was 1%-2% of the loan amount which in turn leads to negative amortization which increases the mortgage balance instead of decreasing it. Couple that with Real estate values decreasing and you have a recipe for disaster. See more at www.ngrealtygroup.com and check out the blog while you are there.

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