From HW:
Laurie Goodman, senior managing director at Amherst Securities, believes one in five distressed homeowners in the U.S. are facing, or may face, foreclosure.
The analyst adds that little may be done to stem the tide of foreclosures without greater government intervention or significant principal reduction. Currently, she said 11.5 million home loans are non-performing or highly distressed.
Transition rates of negative equity homes are improving, however, from last year.
“Many banks are opposed to principal writedowns,” Goodman said. “Though it is interesting that they make good use of this for their own portfolios. We think before this crisis is over you will end up with a mandatory principal writedown program.”
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Meanwhile, Mark Zandi, chief economist at Moody’s Analytics, maintained an optimistic tone on the future of the housing market. He expects home prices to be depressed into 2012, and adds that the knock-on effect from the robo-signing debacle will be minimal. “It’s not going to be a significant issue,” he said.
“Household formations will pick up,” he added, in a belief that supply will not greatly outstrip demand in the long-term. The current, large inventory will provide the main downward pressure on prices going forward.
Zandi said markets will improve overall, as mortgage rates hover around 4.5%. And, he adds, housing has reached the most-affordable levels in recent memory. “By this time next year we should see measurably better job conditions,” he said.
“We aren’t quite at the bottom yet, but we are getting close,” he said.
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And Kyle Lundstedt, managing director of the applied analytics division at LPS, said one in three mortgage delinquencies have been in such a state for more than a year. Perhaps most alarming to Lundstedt is the rise in prime mortgage delinquencies. “The prime markets are the place we’ve seen the most increase in foreclosure,” he said.
So if the govt does principal reduction is it just for the people who stopped paying?If they allow this to happen it should be for everyone or they will set up a major moral hazard situation.
joe,moral hazard is unavoidable. On the simple basis that it is cheaper for the lenders to write down principal and keep the cash flow coming, it makes sense. The fact that the write downs would expose the banks insolvency for all to see is a bit of a problem.
Principal write downs are not going to happen.
It’s not just the moral hazard, it will cripple the banks. If principal reductions start, all those people who are currently paying their mortgage will STOP so they can get in line for a reduction. The whole enchilada goes down if that happens.
Where would the banks be if taxpayers/the fed wasn’t feeding them money every day?
Sigh…
Principal reduction should only happen in bankruptcy court, and Lenders should jump on board big time… that way only the severely affected will undergo the hardships involved and the credit score hit. Many people still feel ethically responsible to pay their debts, and we need to make sure that that stigma does not fade. A big hurdle like filing for bankruptcy might help to separate the two groups.
dg, I’d agree on the bankruptcy court, but only when the primary cause of the BK was medical bills.
If the borrower just went on a spree and got themselves in over their head, I don’t see why they should be rewarded with a principal reduction. Medical expenses are a different story and should be treated as such.
I’m going to make a prediction.
Goodman hasn’t a clue what she’s talking about.
Unless you want to rewrite signifcant history of contract law, tax law, and property rights laws, there will be no principal reductions.
And, taxpayers are in no mood to make FNM/FRE bondholders whole; they need their pound of flesh too.
We’ll muddle through it twice as slow as would be possible under a totalitarian regime, we always do.
Some people have a hard time seeing the future as anything but the way they want it to be, flying cars and all. Laurie is clearly one of those people.
Chuck
Zandi’s pretty clueless, too.
There’s no significant job creation in sight, and both demographics and economics are pushing for more household consolidation, not formation.
@chuck
americans have no clue about RE law. the TBTF banks will do whatever they wish to save their asses….laws have already been nixed.
anytime anyone stands up to these people they are branded as loonies and tassed. we dont have the guts to stand up to the banks…oh wait american idol is starting…i’ll be right back……..