Wednesday, August 05, 2009

Disturbing Chart of the Day

Deutsche Bank predicts that the percentage of underwater mortgages in the U.S. will reach 48% by the first quarter of 2011.

Now combine this forecast with the fact that a negative loan-to-value (LTV -- or "underwater") mortgage is "the single most important factor" in a foreclosure, based upon a study of millions of individual loans.

Now add in the fact that some expert observers believe that an enormous block of homes -- whose mortgages have already defaulted -- are being hidden by banks to avoid the impact of write-downs on their balance sheets.

[This] "Shadow inventory has the potential to give us another leg down on home prices during the second half of the year," said Steven Wood, chief economist at Insight Economics in Danville, California... "It appears that there is a significant amount of shadow inventory in the form of bank owned properties, which will continue to grow with the rising in delinquencies," he said...

Doctor Housing Bubble concludes, "...with those toxic Alt-A mortgages, how many homeowners are going to opt for the ridiculous modifications that basically make them lifelong renters with zero mobility? ...Summer selling season is nearing the end and we are now going into the slow selling season with shadow inventory coming into the light."

Buckle your seat belts: it would appear that a major deflationary spiral has yet to unwind.

Each foreclosure harms the prices of neighboring homes; this leads to more underwater mortgages; which, in turn, results in more foreclosures... rinse and repeat until done. And banks will have to continue hiding as much shadow inventory as possible, especially in California, to prevent a real financial crisis.

Now consider that Fannie Mae and Freddie Mac were at the epicenter of the housing meltdown, purchasing and repackaging all sorts of toxic mortgages. And Congressional Democrats are blocking an investigation into those entities.

Given this outstanding track record, it's no wonder voters are so excited about the Democrats' effort to take over another one-sixth of the economy: the health care system. And it's a good thing we have such an experienced hand, with a phenomenal track record of economic achievement, serving in the White House.

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