Bring It On!

Upside Down and No End in Sight

April 30th, 2008 | by Jet Netwal |


My Sister-in-law is in the market to buy a house. Via Bloomberg:

About half of recent subprime and Alt-A borrowers may soon owe more on their mortgages than their houses are worth or hold minimal equity, putting $800 billion of debt at greater risk of default, according to Barclays Capital.

Subprime loans from 2006 and 2007 that exceed the value of the homes jumped 5 percentage points to 19.8 percent in the fourth quarter, and may reach 26 percent by midyear if prices drop at the same pace, Barclays analysts wrote in a report yesterday. Alt-A loans, a grade better than subprime, would grow to 23 percent from 16.3 percent.

It gets worse. Areas experiencing free-falling prices are where a lot of these loans are. That means the actual market valuations are typically far lower than the aggregate valuation figure. Add the sub prime factor in, and the hard landing is in sight.

Among two-year-old Alt-A mortgages that are underwater, 33 percent are at least 60 days late, the analysts wrote. That compares with 7 percent delinquency on similar loans in which homeowners have equity of at least 20 percent. For corresponding subprime loans, the delinquency rate is 58 percent for underwater debt and 29 percent where equity exceeds 20 percent. — Bloomberg

When this dust settles, my SIL should have pick of the litter. The real estate agent she’s working with told her they would offer 20% below asking on whatever house she decides on. Nice game plan coming from someone who is legally bound to represent the SELLER in the transaction. The housing market is gluted with people who just want to get enough out of their house to walk away without a loss. Even when reducing their price to the aggregate, they are in for a rude awakening.

Capitalism is a bitch.

Hat tip to Atrios

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