The Homa Files

Takeaway: About half of all foreclosures are attributable to loans going underwater.  That is, the borrower could keep the loan commitment and keep paying, but chooses to simply stop making payments.  For the other half, about half lose their jobs and can’t make payments and almost 40% are simply deadbeats who shouldn’t have been given the loans in the first place.  Relatively few borrowers are forced into foreclosure by rate hikes – e.g expired teaser rates and ARMs.

The good news: looks like almost all of the air has be let out of the bubble, i.e. the bottom may be near.

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Stanley Liebowitz — professor of economics at the University of Texas, Dallas – cranked through a database covering more than 30 million mortgages to determine the root causes of foreclosures.

His main conclusion:”Although the government is throwing money — almost $2 trillion and counting — at the mortgage markets with the intent of stabilizing house prices, its methods are poorly targeted”.”

Why?  Because “Zero money down, not subprime loans, led to the mortgage meltdown. The important factor is whether or not the homeowner currently has or ever had an important financial stake in the house. Yet merely because an individual has a home with negative equity does not imply that he or she cannot make mortgage payments so much as it implies that the borrower is more willing to walk away from the loan.”

The good news: “Housing prices are likely to stop falling fairly soon  … That’s because current prices are approaching their long-term, inflation-adjusted pre-bubble level. These pre-bubble prices appeared to be a long-term equilibrium, meaning that prices would be expected to return to those levels.”  

WSJ, New Evidence on the Foreclosure Crisis, July 3, 2009
http://online.wsj.com/article/SB124657539489189043.html#mod=djemEditorialPage

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Cutting Prof. Leibowitz’s numbers another way: about half of all foreclosures are attributable to loans going underwater.  That is, the borrower could keep the loan commitment and keep paying, but chooses to simply stop making payments.  For the other half, about half lose their jobs and can’t make payments and almost 40% are simply deadbeats who shouldn’t have been given the loans in the first place.  Relatively few borrowers are forced into foreclosure by rate hikes – e.g expired teaser rates and ARMs.

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This entry was posted on July 8, 2009 at 7:55 am and is filed under Housing - Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.