These are staggering numbers. I heard a lecture from an analyst from Anderson School of Business at UCLA which was a bit gloomier than this but these are some of the gravest predictions I have seen in print. Will we see more aggressive programs from the administration to combat the forecasts? The various moratoriums so far have had less than robust results. A contact at Wells Fargo tells me they have had less than a 1% success rate in loan mods. I can't see a substantial turn around until at least 2013, any thoughts?From Housingwire.com.By AUSTIN KILGOREAugust 6, 2009 4:18 PM CSTDeutsche Bank (DB: 66.81 +3.39%) believes continued declines in home values will increase the number of US mortgagors with negative equity from 14m in Q109 to 25m in Q111.According to a report Deutsche released this week, the 25m represents a projected 48% of all US mortgages. While subprime and option adjustable-rate mortgages (ARM) are the biggest source of underwater borrowers in the current market, Deutsche said a larger percentage of prime conforming and prime jumbo borrowers will join the fray.Prime conforming and prime jumbo will make up 79% of all US mortgages and Deutsche estimates 41% of conforming and 47% of jumbo will be underwater, up from current levels of 16% and 29%, respectively.This rapid influx of underwater borrowers will have a significant impact on default rates. In addition to future underwater borrowers being forced into default from a “life event” — unemployment, divorce, disability, etc. — Deutsche warned others may “ruthlessly” or strategically default.Increased defaults in the middle class will suppress consumption, added Deutsche, further slowing housing recovery.It’s hard to predict exactly how high the default rates will go. The current housing recession is unique in that it was brought on and perpetuated by a number of factors — unstable loan products, crashing housing prices, and unemployment, among others. Deutsche cited a study of the Massachusetts housing decline of the late 1980s and early 1990s that showed less than 7% of underwater borrowers defaulted as perspective on the default rate for underwater borrowers.But in the early 1990s, borrower and loan product quality were significantly better, the home price decline wasn’t as severe, and unemployment was lower. Deutsche said the 7% experienced in Massachusetts should be the floor — a best-case scenario — for the surge of underwater borrowers it expects in 2011.Borrowers with loan products with already high underwater rates will only get worse.By 2011, Deutsche predicts 89% of option ARM borrowers will be underwater, up from 77% in 2009. The rate of underwater subprime borrowers will increase from 50% to 69%, and underwater Alt-A borrowers will increase from 49% to 66%.An important factor to consider is how deep underwater borrowers will be, and it depends on their loan type.For prime conforming borrowers, Deutsche predicts the number of borrowers with negative equity — loan to value (LTV) between 105% and 125% — will virtually equal the number of borrowers with what it calls “severe negative equity” — LTV over 125%.But Deutsche expects the 89% of option ARM borrowers underwater to be split with most — 77% of total option ARM borrowers — holding severe negative equity. For underwater prime jumbo loans, more borrowers will have severe negative equity — 29% of the combined 47%.The split for underwater Alt-A borrowers is expected to take an opposite proportion, with 49% of all Alt-A borrowers in negative equity and only 18% in severe negative equity. Underwater subprime borrowers will face a similar breakdown.
I think that mortgage lending costs are at historically lows, don't rates average more like 7-8% rather than the 5-6% we're seeing now? I don't think that lowering interest rates will have a beneficial effect overall. I think bigger down payments are the answer.
The Saddest part of this entire Fleecing of America is that Big Bank can end the recession tomorrow..This Country has never been about price.. it's always been about How Much Down and How Much per Month.. Interest Rates on home loans are at least 2.5 to 3% above where they should be in relation to the Cost of Funds and where the Fed intended them to be when they repeatedly lowered the Fed Funds Costs last fall.. They've Estimated that This Recession has Cost us All 21 TRILLION Dollars in Lost Equity which can only be recovered if home mortgage interest rates are cut significantly . .Big Bank Doesn't want us to focus on this because... They're raking in Record Profits lending us the money at 18-30% on Credit Card Debt and High Interest Consumer/Auto Loans.. The Home Mortgage Lending Rate USED to be tied to the Savings Rate (passbook savings and CD's etc) plus a 2-2.5 % Margin.. What incentive is there for Big Bank to Go back to only a 2.5% PROFIT.???? Imagine what would happen to all the Defaulted Loans if the rate were fixed at 3% for 30 years..would those homeowners who's rates have doubled when the ARM's Adjusted walk away from their Mortgages??? I sincerely doubt it.. If your Mortgage Rate was cut to 3%, what would you do with all that new found "Disposable Income"? first, you'd pay income taxes on it thereby cutting into the federal debt, and 2, you'd find a way to Dispose of it.. (maybe buy a new car...oh.. wait.. they're giving everyone new cars.. well , maybe buy some real estate, or clothes or "stuff"?.. think about it..
Tell everyone you know to fight for lower rates.. It's the Salvation of the Real Estate Industry and ultimately , the nation. Real Estate has historically led the Nation into Recession, and historically , led the nation out of Recession... ..
People ask me all the time, when i think we hit bottom in teh real estate market and I keep telling them, bottom maybe a ways off and i get laughed at. They keep spouting off retail number and consumer confidence numbers as well as interest rates but what many are forgetting is exactly what is published in your blog. Value is going to be coming down big time due to negative equity, ARMs, JUMBOs and let's not forget the possibility of higher energy cost, poor government fiscal policy, increasing national debt, a shortage of buyers for our notes and more.
I can't say I completely agree with the prediction...it's just too early to say with any confidence however, I do believe it's not far off from possible.
Comments
Tell everyone you know to fight for lower rates.. It's the Salvation of the Real Estate Industry and ultimately , the nation. Real Estate has historically led the Nation into Recession, and historically , led the nation out of Recession... ..
Just a thought..
I can't say I completely agree with the prediction...it's just too early to say with any confidence however, I do believe it's not far off from possible.