Ten Million More Foreclosures?

Monday’s email didn’t contain the entire blog for about half of my readers.  Some people received an email that contained the entire blog.  Others received an email that only contained half of my post.  Very strange.  If you want to see the entire blog, it’s posted here (scroll down to Monday’s blog).

Today’s quick thought…

Recently, I’ve been reviewing the Senate testimony of Laurie S. Goodman (Amherst Securities).  She testified in September and her testimony seemed very similar to the Fed’s white paper on housing (released in January).  Here are a few key numbers from her testimony:

There are approximately 80 million houses, but only 55 million have mortgages.

Of those 55 million, approximately 8% of the loans are classified as nonperforming (60+ days delinquent).

Another 7% are performing now, but have been delinquent in the past (and this is a bad sign – these people have a high “re-default rate”).

Another (separate) 5% are more than 20% underwater.

Another 10% are between zero and 20% underwater.

She estimates that another ten million foreclosures could occur over the next six to eight years.  Of course, the risk is that foreclosures could push prices lower, pushing more people underwater (where they owe more than their house is worth).  People who are slightly underwater don’t strategically default.  But, strategic default becomes a more significant option when a borrower is underwater by a larger amount.

These potential problems explain why we have to take action in order to stabilize home prices.  The current idea being promoted is that we need to bring large investors into the market to turn houses into rental properties.

See exhibit below.

Have a great week.

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