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First, Amherst Securities Group took a look at Pay Option ARMs. These are the adjustable rate loans so popular in 2006 that allowed you to choose your monthly mortgage payment, while tacking what you don't spend on to the principal of your loan. Only 9 percent of these loans had full documentation from the borrower and 76 percent were originated in California, Florida, Arizona and Nevada, our four disaster states for housing. It should therefore come as no shock that they are suddenly approaching subprime in their delinquency status. So while we all sit around saying that the subprime loans have already worked their way through the system, they're fast being replaced by POA's. "For 2006 securitized issuance, 61% of subprime loans have defaulted, as have 49% of the option ARMs," according to the Amherst report.
Not soon after I saw that report, another flew into my "In" box from Fitch ratings: "Overall, prime RMBS 60+ days delinquencies rose to 9.2% for December 2009, up almost three times compared to the same period last year (3.2% in December 2008). The 2006/2007 vintages combined rose to 12.7% from 4.3%." They're talking about residential mortgage backed securities, which of course are pools of residential loans.
"Total delinquencies, excluding foreclosures, increased to a record high 9.97 percent, representing a month-over-month increase of 5.46 percent and a year-over-year increase of 21.29 percent. Loans rolling to a more delinquent status totaled 5.01 percent compared to 1.52 percent of loans that improved. Of loans that were current in December 2008, 4.37 percent were either 60 or more days delinquent or in foreclosure by the end of November 2009, a rate higher than any other year for the same period."
So instead of diving into a bottle of Ketel One, I jumped on a conference call with the Mortgage Bankers Association that included their chief economist Jay Brinkmann's economic forecast. Brinkmann spoke quite a bit about unemployment, noting that while the rate of job losses is definitely slowing, the already-unemployed are not getting back into the job market at a healthy rate. He noted specifically that this would mean many more prime loan defaults by borrowers in financial trouble as opposed to borrowers who took out loans they never should have been offered.
There are two reasons why so-called strategic defaults have been considered antisocial and perhaps amoral. One is that foreclosures depress the neighborhood and drive down prices. But in a market society, since when are people responsible for the economic effects of their actions? Every oil speculator helps to drive up gasoline prices. Every hedge fund that speculated against a bank by purchasing credit-default swaps on its bonds signaled skepticism about the bank’s creditworthiness and helped to make it more costly for the bank to borrow, and thus to issue loans. We are all economic pinballs, insensibly colliding for better or worse.
The other reason is that default (supposedly) debases the character of the borrower. Once, perhaps, when bankers held onto mortgages for 30 years, they occupied a moral high ground. These days, lenders typically unload mortgages within days (or minutes). And not just in mortgage finance, but in virtually every realm of our transaction-obsessed society, the message is that enduring relationships count for less than the value put on assets for sale.
Think of private-equity firms that close a factory — essentially deciding that the company is worth more dead than alive. Or the New York Yankees and their World Series M.V.P. Hideki Matsui, who parted company as soon as the cheering stopped. Or money-losing hedge-fund managers: rather than try to earn back their investors’ lost capital, they start new funds so they can rake in fresh incentives. Sam Zell, a billionaire, let the Tribune Company, which he had previously acquired, file for bankruptcy. Indeed, the owners of any company that defaults on bonds and chooses to let the company fail rather than invest more capital in it are practicing “strategic default.” Banks signal their complicity with this ethos when they send new credit cards to people who failed to stay current on old ones.
Originally posted by Bicent76
Cause and effect, when you sell someone a house they cannot afford, well, this is what you get..
Nearly one-third of American homeowners, or 16 million, are currently underwater on their mortgages. That is an early sign that 2010 could be yet another disastrous year for the already beleaguered housing market.
On top of that, interest rates are expected to rise in 2010, making it less enticing for potential buyers to purchase a home. A government tax credit for first time homebuyers is also set to expire this spring, which is expected to sap demand from the housing market. Both those factors will lead to a glut of homes on the market, further driving down home values.
There are currently 3.2 million new and existing single-family homes on the market, a nearly seven month supply.
And, over the next 12 months, that number is expected to increase significantly. A total of 2.4 million homes are expected to be foreclosed in 2010. That could lead to home prices falling by as much as another 10 percent. At that rate, homeowners will have lost 40 percent of the value of their homes since the pricing peak in 2006.
While, tax credits, prices and inventory have a major effect on the housing market, the biggest factor of all is unemployment.
Originally posted by infinite
Americ a slides deeper into depression as Wall Street revels
And, more worrying, China has raised the deposit of banks by 50 bases points in fear a credit bubble is emerging within the Chinese economy. If it bursts, then the US shall find China investing within herself instead of Treasuries.