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Wednesday, August 19, 2009

Homeowners Are Drowning...And So Is The Nation

With nearly half the mortgages in the U.S. expected to be under water when the recession ends, things look pretty bleak for mortgage servicers and investors, let alone consumers.
So begins the story by Glenn McCullom in National Mortgage News - a publication you may want to subscribe to.

Mr. McCullom refers to a report by Karen Weaver Ying Shen, an analysit in New York at Deutsche Bank. McCullom says that in her report she says that "The percentage of "underwater" loans may rise to 48%, or 25 million homes, as prices drop through the first quarter of 2011..."

This is an interesting analysis and one which I believe. There are those that aree saying that we have "bottomed out" to which I reply, I don't think so. If Ms. Ying Shen is correct then the worst has yet to come. There can be no recovery without real estate recoverning and certainly not without unemployement decreasing. Neither of these important factors are occurring or look like they will in the near future.

More of the negative impact to our economy - and us - is further told by Ms. Ying Shen's report. McCulom further says that according to Deutsche Bank the share of homes mortgaged for more then their value was 36% at the end of March. he continues by
Further deterioration will depress consumer spending and boost defaults by borrowers who face unemployment, divorce, disability or other financial challenges, the securitization analysts said.
Even more frightening is his comment on seven real estate markets in the U.S. which had the "fastest appreciation during the five year housing boom". Those markets he says are, Fort Lauderdale , Miami, Merced and Modesto, CA and Las Vegas. (I would have to assume that these markets cover the majority of the counties they are situated in). He says that these markets my have as many as 90% of borrowers underwater according to the Deutsche Bank report.

It is important to note that the latter comment deals with borrowers who are underwater not the number of homes but it is safe to assume that the vast majority of homes purchased during the boom years were financed.
Already, servicers are grappling with a delinquency tsunami. According to figures compiled by National Mortgage News and the Quarterly Data Report, 34% of all subprime loans — or $320 billion worth of loans — are in some stage of delinquency.
It appears as if we are drowning economically and no rescue appears to be on the horizon. I don't even see a flotation device anywher in sight either. We seem to be having an endless cycle of downturns which in turn feed more downturns which feed even more downturns.

As said earlier, without a recovery in real estate and employment - both of which feed on each other and continue the cycle - there can be little in the way of economic recovery on a national scale.

Help, as promised by the current and past administrations, have not come to the people. The help that was made available - trillions of dollars - has certainly had a positive and lucrative affect on our "too big to fail" financial institutions. They seem to be reporting profits and higher returns and increasing stock values. All this while the general population is drowning. Could it be that these "too big to fail" institutions that "you" have sent financial aid to own all the life vests and flotation devices and holding them instead of using them? I think so. These guys are living the good life, getting a better life - if that is possible with the money they already have - and don't give a dam about the rest of us.

We are busy being distracted by conversation of health care reform - and it is only conversation at this point as there is no definitive proposals on the table yet. This distraction, while a valid topic is purposeful to detract our attention from drowning. Are the members of our Administration and Congress that stupid to believe that we think it is ok to drown knowing that maybe somewhere down the road a national health care program will bring us back to life? We need a healthcare program but we need to eat to. With no food, no health care program will benefit us.

I say to our Congressmen, you are all members of the human race and Americans. You enjoy stable and high incomes, benefits and perks and THE BEST HEALTH CARE PROGRAM IN THE NATION. In your comfort and as OUR representatives you should be working first and foremost on rescuing us from certain drowning.

To read the full article in National Mortage here

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