Falling U.S. home prices and a lack of available credit may result in foreclosures on 6.5 million loans by the end of 2012, according to a Credit Suisse research report on Tuesday.Shutdown of Mortgage Bond Market
The foreclosures could put 12.7 percent of all residential borrowers out of their homes, Credit Suisse analysts, led by Rod Dubitsky, said in the report. That compares with a foreclosure rate of 2.04 percent in the last quarter of 2007, they said, citing Mortgage Bankers Association data.
The new forecast includes 2.7 million subprime loans whose risky characteristics sparked the worst housing market since the Great Depression. Subprime foreclosures, on top of the 676,000 already in or through the process, will hit 1.39 million in the next two years alone, an upward revision from the 730,000 predicted by Credit Suisse in October.
Falling home prices have made an increasing number of U.S. homeowners more vulnerable to default, they said. Nearly a third of subprime borrowers owed more than their home was worth at the end of last year, and that figure will double to 63 percent in 2009, they said.
The shutdown of mortgage bond markets that financed many risky borrowers during the housing boom has also made it harder to refinance into affordable loans, they added. "These factors, coupled with snowballing negative psychology, are contributing to a rapid rise in foreclosures," the analysts said.
Everywhere I turn I see credit being curtailed. There has indeed been an enormous shift in both consumer and lender psychology. So much so that Walking Away Will Be The Next Mortgage Crisis.
Foreclosures Quadruple in California
The San Francisco Gate is reporting Foreclosures quadruple in state, Bay Area.
Tens of thousands of Californians lost their homes during the first three months of the year as foreclosures soared more than 300 percent across the Bay Area and the state. Many experts expect those numbers to climb higher this year and beyond.Short Sale Process Is Failing
"The problem isn't going away anytime soon," said Andrew LePage, an analyst with DataQuick Information Systems. "We're still looking for some sign of a peak in foreclosure activity."
Lenders took back 6,579 homes in the nine-county Bay Area during the first quarter, up from 1,493 a year ago and 4,573 in the fourth quarter, according to a report released by DataQuick on Tuesday. Throughout California, 47,171 homes were foreclosed on, up from 11,032 a year ago. The regional and state figures are now at their highest level in more than 15 years.
Realtors are complaining short-sale process is failing.
Realtors in many U.S. states say lenders are demanding excessively high prices before allowing distressed borrowers to offload their homes in "short sales," making the housing crisis worse.Siding With The Realtors
"The system is broken," said Ron Rosen, a Realtor in Lighthouse Point, Florida. "The only question banks should ask is can they make more in a short sale than in foreclosure." "The answer is that in nine out of 10 cases they will lose more money in a foreclosure," Rosen aid. "But some banks seem to be asking a different question."
Gary Reggish, a Realtor at Remerica United in Novi, Michigan, said most of the owners he has worked with on short sales have been kept waiting months for word from their lender, which had caused many deals to fall through.
Andrea Gellar, a Realtor at Sudler Sotheby's in Chicago, said "It can take several months to get approval on a short sale and few buyers will wait that long," she said.
I seldom take the side of Realtors on anything, but in this case they are correct. Lending institutions are digging their own grave by not speeding up the short sale process. In fairness, one of the problems is the securitization mess of figuring out who owns what. However, there is no excuse when a single lender owns the mortgage and fails to act.
Mortgage Stress Is International
Martin North, author of Anatomy of Australian Mortgage Stress is blaming behavioural problems for the crisis down under.
Let's take a look at Home mortgage stress on rise to see what similarities there are with the US housing crisis and whose bad behavior is to blame.
The number of families under severe mortgage stress on Melbourne's fringes will double in the next six months, a report predicts. The Anatomy of Australian Mortgage Stress report, by Fujitsu Consulting, measured mild and severe mortgage stress in 11 different social groups, and forecast dire conditions for several of them.A Behavioral Problem
The number of young growing families in mild and severe mortgage stress is 23,829 in Victoria but will more than double to 52,466 by September. And the number of "suburban mainstream" households in mortgage stress will also double, from 14,137 to 27,794.
Report author Martin North said the skyrocketing price of houses and interest rate rises had put huge numbers of Australians in over their heads. "Many home buyers were extending themselves when rates were lower, because prices were so high," Mr North said. "So when interest rates went up, almost immediately they were in trouble."
Mr North said that a "behavioural problem of people living beyond their means" was actually to blame.
Blaming this on a behavioral problem sounds about right. So whose behavior was bad? Let's make a list.
Bad Behavior List
Borrowers
Lenders
Appraisers
Risk Specialists
Rating Agencies
Guarantors
Homebuilders
Realtors
Underwriters
Banks
Broker Dealers
Ownership Society Proponents
HUD
Fannie Mae
Freddie Mac
Economic Cheerleaders
Congress
Somehow that list looks incomplete. Oh yeah, I remember. Please put the Fed and central bankers in general at the top of the list.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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