I thought the failure rates were something like 15% on subprimes with the ALT-As already failing at a higher rate (and many resetting faster than the Credit Suisse schedule). But I had no idea that such a high percentage were actually failing.

What is the basis for this number? Yikes!

During the boom, many people were using HELOCs and cash-out refis as a way to earn a third income. The house often became the primary “earner” in the family — as people took $50K-$100K **per year** in additional mortgage debt. Many of these people would have defaulted during the boom, except they kept taking on more debt to cover their existing debt. That source of additional credit/debt is now closed, yet the FBs now have debt which is 2-5X++ higher than their original debt from before the credit bubble (which went hyperbolic, beginning in 2001).

It’s not foreclosures that cause falling prices, but falling prices that cause foreclosures, IMHO. People who would have defaulted were able to sell their houses or take on more debt to buy themselves some time before the inevitable happened (foreclosure), as long as prices were going up. Naturally, abandoned and neglected homes DO cause neighborhood prices to decline, and that is why banks should be forced to get those homes back on the market **and sold** as soon as possible.

What affects prices more than anything else are future buyers and their willingness and ability to buy. Monkeying around with interest rates and loan durations is just masking the cracks underneath, it does nothing to **fix the problem** of too much debt/too high prices.

The longer they try to push off the inevitable, the more resources will be wasted — at the very time we will need those resources to help alleviate the side-effects of the deflation/debt destruction (job programs and deposit insurance).

People can handle 6-12 months of unemployment, but they cannot handle 6-12 years. We need to **fix the problem** quickly and efficiently by letting prices of all assets decline to a point where normal working people can afford to pay without taking on overwhelming debt. They are doing the very opposite, which will end up causing far more damage.

Also.. the farther the market goes down, the harder those future resets will be.

Someone will be taking a major loss on all those ‘assets.’ The question is whether it will be the tax payers or the banks.

CNN Article.

Would agree that the majority of subprime loans are on the lower-end, and that we could see thousands of more foreclosures on the high end.

Unless they tweak/waive the neg-am recasts.

You know the government is going to keep tinkering with this……

Also, did the analysis include any breakdown by market tier? I assume that most subprime foreclosures have been in the bottom third of the market. However, my understanding is that most of the Alt-A’s will be in the top and middle thirds of the market. Of the SD county foreclosures so far, is it known approximately how many are in each tier? I’m thinking that if the top tier has only had 10% of the foreclosures so far, but will get 50% of the new 26k foreclosures, it would have a huge effect. Any such effect would be multiplied by the fact that the dollar loss per foreclosure in the top tier is much more than in the bottom tier.