According to the Wall Street Journal, the "Economy Can Withstand More Mortgage Foreclosures." However, when you read the article, you realize that the optimistic outlook depends on two very big -- and very unlikely -- assumptions.
About 1.1 million foreclosures are likely to result from jumps in monthly payments on adjustable-rate home-mortgage loans made in 2004 through 2006, according to a study by First American CoreLogic.
Christopher Cagan, director of research at the real-estate-information concern based in Santa Ana, Calif., said those foreclosures are likely to occur over six to seven years and won't be enough to damage the national economy. (Financial markets could be hurt, however. See Abreast of the Market1.)
Dr. Cagan analyzed 8.4 million adjustable-rate loans made during those three years and estimated that 13% of them, totaling $326 billion, will end in foreclosures. After lenders resell those properties, the total losses for lenders or investors holding the loans will be $113 billion, he estimated. That is about 1% of total U.S. home-mortgage loans outstanding.
"The vast majority of borrowers will be fine," Dr. Cagan said.
The estimates are based on an assumption that average home prices will remain about level with the December 2006 level over the next five years. If prices drop 10%, the number of foreclosures would jump to 1.9 million, Dr. Cagan projected. But a 10% rise in prices would cut foreclosures to 489,000, he estimated. When prices rise, people struggling with loan payments are more likely to be able to refinance into a loan with easier terms or sell their homes for more than the loan balance.
Given the extraordinary gains in home prices in recent years, the fact that inventories, vacancies, and delinquencies are at or near record levels, purchase-contract cancellation rates are still outpacing sales at many new home builders, housing completions have only just begun to level off, and a large segment of prospective home buyers -- those categorized as subprime -- will find it difficult, if not impossible to obtain mortgage financing under new, more restrictive guidelines and difficult market conditions, then the view that "average home prices will remain about level...over the next five years" seems totally unrealistic. But that's not all.
The projections include only foreclosures expected to result from jumps in interest rates that occur when loans "reset" from their initial interest rate to a higher one, usually after two to five years. They don't take into account foreclosures that will occur for such reasons as job losses, deaths, divorces, illness or fraud.
With myriad indicators pointing to an imminent recession, and a sharp increase in newsflow suggesting that the housing bubble has been accompanied by a substantial measure of fraud, then these so-called exceptions may, in fact, boost the overall level of foreclosures well beyond the supposedly worst case scenario.
the troubled waters are as if a mere breeze was blowing from the south seas
wait untill the north easterns start to blow
when the hedge funds collpase which is not long off
all is planned all is as they want
when we are in the streets and the usd is worth
10 cents cad$ then we will beg them for the Amero and give up the constitution with out so much as a wimper
such is the plan that plays out today
we are mere pawns in a game
the fed orchestrates the scenario with masterfull hands
the NAU will not materialize against protest it will be hailed as the savior
and so it goes we stumble from crisis to crisis for ever in the Eddie Bernays bubble we have been foisted with
longing for the days of gold and silver currency our fore father tremble in thier graves we are reduced to greed,barbarianism baboonish ideas to steal money from our fellow country men left in the streets as the winds blow harder
the American dream will soon be the American ,nightmare.
with no place to turn we will gnash our teeth
reduced to men in shackles our forefather's gift in the dust
Posted by: Dave | March 28, 2007 at 07:01 PM
WE may get by on recession .but it is my belief ,that we not only will see Depression ,but that it will be worse than in 1929. Since in 1929 the people had their life's saving with them,today the lifesavings are gone ,credit cards maxed out,and home equity gone.
No this time there is no saving the corrupt system that has taken the American dream and twisting it into a vile and torment full nightmare.
Great Book well written and Authored by a man that should be running financial matter of America.
Instead we have been foisted with crooks and gangsters
Posted by: Dave | January 24, 2008 at 12:52 PM