Credit Suisse forecasts more than 8 million mortgages will go through foreclosure over the next four years. That’s roughly 16% of U.S. households with mortgages.
Analysts Rod Dubitsky and Larry Yang write that foreclosures could climb to 10.2 million if the recession is severe.
On the other hand, if banks do many successful loan modifications to help borrowers afford their mortgage — something Dubitsky and Yang doubt — the forecast drops to 6.3 million.
Yet while those are big numbers it’s worth noting that 32% of all owner-occupied households, or roughly 23.9 million, have no mortgage at all, according to Census data.
All things being equal, Credit Suisse estimates 1.8 million mortgages will have entered foreclosure by the end of this year.
Here’s a clip from the report, which is not available online as far as I can tell (emphasis added):
Despite some initial signs that subprime foreclosures were near a plateau, the combination of severe weakening in the economy, continued decline in home prices, steady increase in delinquencies, particularly in the prime mortgage space, ensure that foreclosure numbers, absent more dramatic intervention, will march steadily higher. While loan modifications and similar interventions (such as the Hope for Homeowners FHA refinancing program) could help to reduce the march of foreclosures, the proliferation of generally timid loan mod programs with confusing loan features raises significant doubt as to whether the current loan mod momentum is sufficient to reduce foreclosures materially. Further, though mortgage walkaways have been important, the disease hasn’t infected the general population. However, should the downward spiral in home prices, neighborhood condition and equity deterioration continue, more and more mainstream borrowers are likely to walk away from their homes. Thus far, the population of subprime borrowers in the US is relatively small. However, the severe recession that appears more and more likely, coupled with the collapse of confidence in housing and resultant foreclosures and the impact on credit scores, risks transforming the US into a subprime society. That is, the deeper the foreclosure crisis penetrates into the gene pool, the greater the percentage of American consumers with impaired credit, and therefore limited ability to access credit. Therefore, foreclosures aren’t only a housing-related phenomenon and should foreclosures spread, a large percentage of of the population could suffer impaired credit, which in turn would hurt credit availability.
Depressing stuff.
And more depressing news…
- CA banks drop protection against bad loans
- Mortgage aid scheme a failure
- Bad house, car debts mount in O.C.
- 44% of O.C. home resales were foreclosures
- O.C. home seizures in free-fall
- The next mortgage crisis
- O.C. distressed-home listings take year’s biggest drop
- One way to tackle foreclosure eyesores
- Bad-loan fix: Model or Myth?
- More on homeowners defaulting a second time
- Homeowners who got a break often defaulted again
- 10% of home loans delinquent or in foreclosure
Scary…..and yet I’m still chompin’ at the bit to buy something!
theres lots of people buying. If you find something you really like, thats affordable, and plan on staying for a while, then go for it. However, if you cant find what you like, i’d be patient . Chances are there will be more choices available in the next few years. If you cant afford now, you may need to wait for prices to come down more.
A stable job also helps. oc unemployment is at 6% and california at 8%. some say the rate could be as high as 10% nationwide, if you factor in those that gave up looking for work.
the artificially high prices remind me of the artificial “real women” of O.C, inflated boobs, fake nails, blenched and over done hair. Eventually they will deflated as well and will be replaced.. Perhaps they will be auctioned off to the lowest bidder as well.
I’,m probably one of the very few who just bought a house
Old news from three weeks ago!
How many of these 8 million foreclosures do Messrs. Dubitsky and Yang forecast will be caused by Select Portfolio Servicing f/k/a Fairbanks Capital Corp., of which Credit Suisse has owned 100% since 2005? CS staff sat in on the structuring of the Sept 2007 modifications to USA/Curry v Fairbanks so there is no way that they are not aware of how their subsidiary does business.
Dont worry the Govt will step in and give us all govt Housing for free, well maybe not for free somehow they will tie us up and have their way with our sensitive parts.
Another one for the Bush administration to take credit for before their long awaited departure… don’t let the door hit you in the ass on the way out !!!!
Thank yo to those Democrats in congress who wanted to put a home in everyone’s pot and succeeded, only to find that these (financially challenged but capable of voting) folks didn’t like to pay mortgages. These low incoming housing type folks didn’t realize that handouts only go so far (like the government wasn’t going to pay the mortgage payments) so after months of not paying, they are asking for help with their mortgage! Thank you to these entitlement politicians who are now pointing every which way but toward themselves. Next? Housing projects for the millions without home! Here comes the ’60s again! A new “Great Society”! Are you old enough to remember?
No matter what happens. It’s always Bush’s fault. Never the Democrats. How naive can people really be.
I can’t believe there are still clueless people out there still blaming everything on Bush. Grow a brain already and use it.
didnt some idiot say that houses will be worth 1.2 mill. by 2012.oh by the way they say the world will end in 2012.
On the bright side, that means about 84% of households with mortgages will not go through foreclosure.
On the other hand, if banks do many successful loan modifications to help borrowers afford their mortgage.
Here is a link from bloomberg about modifications
http://www.bloomberg.com/apps/news?pid=20601087&sid=aoXUY1YDL.6c&refer=home
Anybody that uses the term “subprime society” is trying to stir up emotions, which leads me to question what their true motives are.
To combat the foreclosure crisis, Fannie/Freddie have implemented a new mod program as of Dec 15th:
“Under the Streamlined Modification Program, mortgage and escrow payments can be cut to 38 percent or less of an eligible borrower’s gross monthly income by one or more of the following steps as necessary: reducing mortgage rates, extending the mortgage term up to 40 years, or forbearing part of the principal.”
http://www.marketwatch.com/news/story/Fast-Track-Workouts-Delinquent-Borrowers/story.aspx?guid=%7B8CAA92BC-E6B3-4CAE-BF52-55E35CBF2047%7D
This is going to slow the velocity of foreclosures down significantly for Fannie/Freddie held loans, which make up half of all U.S. mortgages.
Ditech……glad your now leading the war!….so are you saying that 16% loss is acceptable?
Those loan renegotiations to 38% won’t stem most foreclosures because the homeowners could only afford the negative amortization rates of 1% on their option-ARMs. This problem has nothing to do with Democrats desires to help low-income borrowers. It was the responsibility of underwriting to make sure people could afford their mortgages after the initial teaser rates expired. But since everyone in the food chain was making money off this great Ponzi scheme, nobody bothered to check buyer’s credit.
matthew-
Fannie/Freddie don’t originate negative amortization loans, so the program doesn’t apply to those borrowers. However, if another servicer applied the program to them, it would work. Stretching the term to a 40 year amortization combines with a large enough principal forbearance would make it possible to reach the 38% debt ratio.
Dream on liar loan, there is NOTHING significant that can stem the tide of coming foreclosures, except prices returning to fundamentals.
MUST BE SUPPORTED BY INCOME
That means faux principle balances have to be reduced on EVERY MORTGAGE in America. Period! NOT GOING TO HAPPEN !!!
And, get used to seeing the word, ‘ Re-default ‘ in all of the headlines in the coming year.
FOR EXAMPLE: From today, not 3 weeks ago . . .
Majority of Modified Loans Fail Again, Regulators Say
http://bloomberg.com/apps/news?pid=20601087&sid=aCs35HqtgbmQ&refer=home
Bogey,
The fact is if you bring payments to an affordable level, most borrowers will choose to stay in their home. The early mods performed around Q1 2008 didn’t lower borrower payments very much, and in many cases even raised payments. These were “catch up” mods designed with the short term goal of getting borrowers current without addressing the long term problem that their payments were still unaffordable. Many of the early modifications will eventually be re-modified more aggressively, with large rate cuts, 40 year reamortizations, and large principal reductions/forbearances.
That may help the foreclosure problem but it won’t help the housing market.
Houses still have to affordable to any new buyers and pricing will adjust as necessary to facilitate that.
No Bush-tatorship? Wow the air almost tastes cleaner, Bush may not be the main cause of the Mortgage crisis but he sure gave it a boost.
Putting the “American Dream” within every Americans reach was not a very bright concept when most people cant make intelligent financial decisions in regard to their future well being.
If Bush/our Govt had put a disclaimer stating “Must be able to afford the mortgage payments and not exceed {insert %} of income” things may have turned out different.
Still you cant cure stupid when people dont take the time to research and understand what they are signing, what the pmts will be when the loan resets, and if they dont understand to hire an attny to go over it with them.
Then again when they finance 100% with no down payment what do you expect.
Its time to think, its one of the main reasons we have that big chunk of meat in-between our ears.
Liar Loan,
38% DTI is “affordable”? in CA, isn’t that about 70% of after-tax income going to PITI?
How many will chose that if they can rent for 30%-40% of after-tax?
# Liar Loan Says:
December 22nd, 2008 at 12:14 pm
“Stretching the term to a 40 year amortization combines with a large enough principal forbearance would make it possible to reach the 38% debt ratio.”
Is this a gut feeling you have or have you calculated the numbers? I’m unfamiliar with forbearance and how it would work. Could you post some numbers so we could see how the 40 year amortization would really work out?
I’ve been wondering if converting loans to 40 year or even 50 year loans might help keep people in their homes long term even if they are underwater for a decade or so. Would it lower payments enough to make staying in the home financially advantageous to renting? My own gut feeling says that increasing loan length wouldn’t alter the monthly payment enough.
I agree. From 10 to 20 years, it’s a pretty decent drop in payment. Going from 30 to 40 doesn’t net you that same change. There is some but it really diminishes as you go higher.
Think about it. You borrow $600,000 at 1% interest only. Gives you a $500/month payment. Assuming that equals only 25% of your income (right!), then when the loan reset to 6%, fully amortized, the payment jumps to $3,597/month, or more than 7x greater.
Changing the terms to 40 years (480 months), brings the payment down to $3,300 a month.
If $500/month is 25% of your gross, your gross is $2,000/month.
So how is re-structuring the above sub-prime loan to $3,300/month going to work?
By the way, 38% of $2,000 is $760/month. That affords a $170,000 loan at 40 years and 4.5%.
So the bank is supposed to write-down the loan from $600,000 to $170,000? I don’t think so.
In case everyone is wondering why loan mods don’t work.
Loan modifications only work if there is income to support the deal.
Marcia-
You’re using the example of somebody that grosses $24,000 per year. Despite what you may have read, the average buyer of $600k homes did not make a gardeners income. Journalists have published the most extreme examples they could find to make a good story. But, I will work with your example to humor you.
Principal forbearance doesn’t have to mean principal write-down. Fannie/Freddie didn’t specify what they meant, but I took it to mean a principal DEFERRAL. Principal deferral in effect creates a balloon payment due at the end of the loan.
So in your example, the lender could choose to defer $430k as a balloon payment 28 years from now. No interest would accrue on this balance, only on the $170k balance that is amortized for payments. If the seller chooses to move or refinance down the road, they would still be responsible for paying off what’s left of the original $600k balance. This would be acceptable to many lenders because they’re not writing down $430k of principal, and it would be acceptable to the borrower who needs an affordable payment.
This is the most extreme example you could think of, and I’ve shown how it’s possible to keep them in their home. Now think about how it applies to the 99% of borrowers that earn more than $24k. Servicers have it in their power to be as aggressive as they need to if it means preventing foreclosure. They can do a combination of principal write-downs/deferrals, rate cuts, and stretched out amortization terms. If the servicer is aggressive enough with any combination of these three, an affordable payment can be found for anybody that has an income.
Not all foreclosures will prevented and I still expect record numbers before this is all over. But I think many will be avoided now that servicers have gotten more serious about stopping this train. Political pressure has had a strong role in shifting from a reactive strategy to a more proactive strategy for many servicers.
LL
Thanks, I think I understand it a bit better.
The forbearance would allow the buyer to pay interest of the entire loan + the principal on a much lower amount (the mortgage balance less the forbearance). This would significantly lower payments.
At the end of the loan, the balloon payment ($430K) is due, which would be paid most likely with a new mortgage.
This would give people the option to stay in their homes.
I think this would be a crappy long-term deal. Because when you’re done paying your mortgage, you have to pay another one. I personally would walk when I realized that this basically forces me to rent my home for the next 30 years and THEN I get to begin significantly paying it down.
Since most Americans seem to think short term and not long term, I think this could actually work.
Kept a person in their home and eliminated a “move up” buyer at the same time.
Brain-
Presumably, inflation will occur over the next 28 years, so home prices won’t be static. If they are serious about staying put for the near term, eventually they will pay off the full loan when they move.
If they’re not serious about staying in the home, there’s nothing a servicer can do to help. This will obviously be certain percentage of underwater borrowers, but not all.
lets see the treasury and the fed have pump in 8 trillion dollars and it still is a train wreck, hmm 8 trillion would of paid off 8 out of ten mortgages, now that the kind of stimulus that works, or better yet let the poeple keep there money in there check no income tax, thats a stimulus that will work, cut backs in goverrmnet lets see no pay for politician and the military everyone is subjest to two yr draft to serve there country for real, the you can claim to de trully patriotic
Brian a person wouldnt be renting for 30 years as they would be paying off a portion of the mortgage, the ballon payment is just putting a 75-80% (or what ever is forebeared)in limbo. The main advantages to this is it gives the economy time to recover, home prices to stabalize, time for the borrower to fix thier credit (which will be important when they go to refi or get a new loan for the ballon balance) so in all it is a win situation.
But as Liar Loan stated if a person doesnt plan on staying in the home this wont help them much, it still could if the person stays in the home for 2-5 years or longer but that would all depend on how the housing market is as time goes on.
What I am curious is how this typical Forebearance will affect the persons credit. (taking into account that their credit is already battered.
Due respect, LL, but personally I think you’re putting too much faith in servicers “doing the right thing”. They call it “Mortgage Servicing Fraud” for a reason…
Among the 8 Million who will lose their homes, are million of Self-Employed Micro-Businesses who have these “Toxic Mortgages” that will RESET and are expected to result in foreclosures.
Many fail to realize that there are millions of self-employed smaller businesses, who employ from 1-10 employees, that are holding the mortgages that are going to reset in 2009 through 2012. These borrowers are Prime and Near-Prime borrowers who hold ALT-A, Option ARMs, Interest-Only mortgages. There are $1 Trillion ALT-As, and $500-600 Billion Option ARMs.
So, here we have a major problem… Not only will these small business owners lose their homes, but there will be the resulting JOB LOSSES on their business failure. Note, although President-Elect Obama is stressing the need to create 3 million new jobs, we must understand that “JOB RETENTION IS AS IMPORTANT AS JOB CREATION”.
The NASE survey is at http://www.nase.org . It is under NASE News “Toxic” Mortgage Survey. My name appears on the Press Release and Commentary.
According to this survey, it is estimated that 3,709,800 small business owners hold Alt-A and other toxic mortgages, and 1,279,800 are already delinquent as they have missed one to three or more monthly mortgage payments at mid-November, before the expected Resets that are scheduled to begin in 4th Quarter 2008 through 2012.
There seems to be only one solution to the housing problem, housing prices must fall or wages must raise. Anything else is simply a band-aid, deferring payments or principle only assumes that thoose owners are going to live there for a long period of time.
This plan doesn’t allow for any movement at all because the loan would come due on the entire mortgage, your back where you started with a inflated home value.
“A stable job also helps. oc unemployment is at 6% and california at 8%. some say the rate could be as high as 10% nationwide, if you factor in those that gave up looking for work”
If you consider the fact that w/o moving cities, many layoffs are proceeded by a paycut (from 10 to 30%) to stay in the same region. Realize, this is a contracting economy. So in effect, buying a home is the worse thing one can do in today’s economy.
Add to that 12% another 40% just hanging on by their finger nails. Cities, Counties and States will go bankrupt because of declining tax revenues. America is finished and the Chinese will foreclose on it in the near future. Staying mobile and renting is not a bad idea to weather this impending storm.
I bought my home last summer (August 07) in Wisconsin for $150K, after selling the comparable home in Long Beach CA for $690K.
Considering I paid cash and my taxes are 2900 yr, and if I invested the $150K in a money market instead, I am paying about $531 a month to live in this house.
That is less than I would pay if I rented. Point being, that here in Wisconsin, you can buy a house for less than you can rent. Until that happens in California, I don’t know why anyone would want to be a buyer.
Don
Gotham, WI
Don you just pointed out a fact that California homes are outrageously overpriced. When you compare what you pay for a home in Ca say around $550k for that price you could buy a home 3 times as large in another state.
I could never afford a home in calif unless my salary doubled. But I cold afford a home in another state. I hope that Ca homes drop in price so they reflect an average of the US not and average of Calif.
Right now I am saving and when I retire in say 31 years ( I will be 68 then unless retirement age is pushed fwd) and will buy a house in a state where home prices are more sane
ditech home loans- so by your logic — during the
great depression 75% of people had jobs so what
was the big deal? makes sense
all of the makeshift government programs to stop the
housing markets implosion are useless… its like
trying to fix the gash in the titanic’s hull with super-glue
aint happenin—
“That is less than I would pay if I rented. Point being, that here in Wisconsin, you can buy a house for less than you can rent”
Don, what you’ve described is common to many heartland (Omaha, Des Moines) and mid-western, Great Lakes area cities (Milwaukee, Erie, Buffalo), away from places like Chicago.
Unfortunately, from Boston to DC & from San Fran to San Diego, the two most heavily settled regions of the country (50%+ of the US population), rents and mortgages are severely disconnected, outside of dingy pockets like Wilmington DE where no one wants to live.
What’ll need to happen is that for a market to see a bottom, a place circa Boston needs an equation like mortgage = 1.25*rent, for it to be worth someone’s capital to put a stake in the ground. Otherwise, there’ll be a lot of upside down loans, esp after major layoffs at a local employer (see Fidelity Investments, Gillette, or State St for Boston metro).
Liar Loan, you are drinking the koolaid if you think they are going to do cram downs on what is owed. Take a look a japan they had a lost decade on that model and RE values have not come back for 17 years. Truth of the matter is that we are in for a long period of deflation as they went through.Gov. can not manipulate rate s to save the day this thing has to play itself out and it will be a long ugly play.