Massachusetts Foreclosure Crisis Could be Bigger Than Initially Thought
For anyone thinking the worst of the foreclosure crisis is behind us, wake up and smell the coffee. Or better yet, take a look at some of the numbers Amherst Securities’ Laurie Goodman is crunching.
Goodman, who took part in a panel discussion on the real estate market I moderated last week at the InterContinental Hotel in Boston, contends one in five homes is either in foreclosure or facing potential foreclosure trouble down the line.
That’s a whopping 11.6 million homes, or about 20 percent of the market, she told members of the Boston Security Analysts Society, which hosted the discussion.
It’s a number that arguably provides a more comprehensive picture than the conventional default rate – 13.5 percent according to the Mortgage Bankers Association.
And it clashes with conventional thinking in a banking industry bracing for another 4 million foreclosures, not double or triple that number. Here’s a link to a recent report by Goodman and Amherst that lays out the numbers.
Goodman’s forecast takes into account a high rate of re-default among struggling homeowners taking part in various, government-sponsored mortgage modification programs.
Goodman’s breakdown goes roughly like this. Twenty of every 100 loans are “impaired.” Of these, nine are seriously behind on their payments. Another six are now “Dirty Current” – in various government modification programs whose graduates have been defaulting at a rate of 50 percent a year. The final five are underwater on their mortgages by more than 20 percent – a group that has been defaulting at a rate of 20 percent a year.
It is a crisis that is more staggering that most of us realize – and is likely to have a much more dramatic impact on both federal policy and the banking industry than many are bargaining for right now.
Goodman predicts Uncle Sam will eventually have to embrace mortgage write-downs – letting 11 million-plus homes slide into foreclosure will prove politically untenable to policymakers and politicians in Washington.
“You have 11.6 million units in jeopardy,” Goodman said. “That is one borrower out of every five. You can’t foreclose on one borrower in five.”
“Politically this cannot happen. Successive mortgage modification programs will be attempted until something works,” she notes in a recent report.
Meanwhile, the banking industry could take a huge hit as well.
Nouriel Roubini, the economist who predicted the financial crisis and who has been dubbed “Dr. Doom” by the press, has looked at Goodman’s numbers and is warning of serious problems ahead for banks.
He pegs the potential damage at a cool trillion.
Ouch!
Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.
Comments
No comments yet.
Leave a comment