Baaad News for Housing!

Moody's macro website, Economy.com, predicts 60% of all mortgage defaults this year will be caused primarily by unemployment - up from 29% last year.

According to the NYT:

From November to February, the number of prime mortgages that were delinquent at least 90 days, were in foreclosure or had deteriorated to the point that the lender took possession of the home increased more than 473,000, exceeding 1.5 million, according to a New York Times analysis of data provided by First American CoreLogic, a real estate research group. Those loans totaled more than $224 billion.

The "Knock Out Punch" for the housing market is just over the horizon and it will be worse than anything seen before in housing.

The market is already staggering and reeling, with prices down 30% since the 2006 highs.

The inventory of unsold homes, 10+ months worth, is actually understated as banks are reluctant to take possesion of more foreclosed houses and some are refraining from putting REO's on the market which will depress prices further.

About 30%, not 20% which is the official figure, of homes with mortgages are underwater, their mortgages total more than the home's value.

Clayton's reports 26% of Alt-A mortgages, given to those with slightly better credit than the subprime borrowers, are in some stage of default as of February.

Then there are the Option ARMS. These beauties were toxic loans given to prime borrowers. They allowed the borrower to select (options) from 4 different mortgage payments each month. The most popular option selected (80%), was not even enough to cover the interest payment for that month! Therefore the unpaid interest as well as the principal piled up onto the back end of the mortgage, increasing the balance due precisely when the value of the property was falling!

These two mortgage classes will begin their 3 and 5 year interest rage resets this summer, 2009. With the likelihood of higher interest rates, combined with the inability to refinance on top of the lower prices, record high inventory and double digit unemployment, the housing market is expected to get hit with the Mother of all Housing Collapses! I predict that more than 40% of all Alt-A's and Option ARMS will default. Stay tuned!


This is even before the resets to higher interest rates kicks in starting October this year.