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March 16, 2010 – Comments (7)

I am reading Financial Armageddon and there is a series of different posts on the mortgage issues.  This caught my interest:

Using [Lender Processing Service] data, for all loans more than 90 days in arrears, the average days delinquent is now at 272 days—up from 204 days in early 2008. For loans in foreclosure, the aging numbers are even more staggering: loans in this bucket average 410 days delinquent, up from 260 days delinquent in early 2008.

Ponder those numbers for just a second. On average, severely delinquent borrowers have gone more than 9 months without making a mortgage payment—and yet foreclosure has not yet started for them. For those borrowers who are in the foreclosure process, it’s been an average of 13.6 months—more than one full year—since they last made any payment on their mortgage.

The article suggests there are 7.4 million people in this situation.  That seems to me a heck of a lot of money not going into housing and probably going into other areas of the economy.  That seems like a heck of a lot of money other areas of the economy will lose when these people eventually start paying for housing again.

 

7 Comments – Post Your Own

#1) On March 16, 2010 at 7:13 PM, dwot (47.75) wrote:

The Meridith Whitney clip in there is quite interesting, "the lending model is broken."  No kidding it is broken.

There is a key difference between Canada and the US on mortgages and Canada's model encourages far more responsible behaviour.  We can not get 30 year mortgages at a guaranteed rate.  The best we can do is to have the rate guaranteed for about 5 years, and we can choose terms as little as 6 months and floating rate mortgages.  Rate can go up on you so the goal is to reduce debt.  Also, you have no tax incentive to keep debt.

There is not a lot said about it, but having 30 year money loaned out and paying for it with short term deposits is enormously risky.  Securitization transfers the risk to who ever buys the mortgage, but the whole model is crazy.  Whitney stated that it was not profitable for banks to do mortgages and hold them on their balance sheet and the only way that gets fixed is to increase the spread so it is profitable.  During my young adult years the interest rate spread between 1 and 5 year mortgages was 1-2%.  How did it practically disappear?  The increased risk is still there and I think the model is broken until rates are priced for the risk.  I also think if you actually price for the risk shorter mortgage terms like in Canada start making sense.

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#2) On March 16, 2010 at 7:34 PM, RLAprof (30.81) wrote:

Even more importantly, until those properties are actually foreclosed upon, the loans show up on bank balance sheets as assets with 100% value.

In other words, the banks don't want to foreclose on all of the delinquent mortgages, because they would have to write them all down to their true value, and they would no longer be able to continue their masquerade of solvency.

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#3) On March 16, 2010 at 8:10 PM, nuf2bdangrus (< 20) wrote:

This is why the market rockets higher.  The banks are holding this junk as "performing" on their books (a lie) and the squatters now have extra disposable income becuase they are not  making a mortgage payment.  You can thank Congress's  criminal interference with FASB 157 and the refusal of banks to take marks on their second liens for this.  Zombies we become.  I don't know when it will bust, but when it does, watch out

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#4) On March 16, 2010 at 8:56 PM, OneLegged (< 20) wrote:

...and no mention of any of this on the prime time news......

 The American people have been had and noone is going to jail!

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#5) On March 16, 2010 at 9:40 PM, RLAprof (30.81) wrote:

What bothers me is that we are paying trillions to "bail out the banks" so that the economy doesn't tank, but when the clock stops, they are still going to be defunct and the economy is still going to tank.

Meanwhile, the felons that caused all of this continue to draw their bonuses, so that they can wall themselves off from the public and protect themselves from the lynch mobs. Dodd is not retiring due to his re-election woes; he is retiring to avoid prosecution. (I'm a liberal Dem.)

I feel like Alstry when I talk about such things, but I am having a more and more difficult time trying to fool myself.

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#6) On March 17, 2010 at 11:05 AM, Rehydrogenated (32.42) wrote:

You make an interesting point.

 We've finally done it! Welfare for the greedy and financially stupid. Yay! Let's bailout people who bought cars that were too expensive for them afford! And clothes! And got drunk and don't remember what happened to their money...*burp*

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#7) On March 17, 2010 at 4:04 PM, russiangambit (29.26) wrote:

> What bothers me is that we are paying trillions to "bail out the banks" so that the economy doesn't tank, but when the clock stops, they are still going to be defunct and the economy is still going to tank.

Well, in the end the money is paying for some people to live mortgage free for a year. In the end the banks still have to recognize the loss. The only benefit for them is that they got 1-2 years of time to make up the losses before they have to book them.

 

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