Laurie Goodman, from Amherst Securities presented her latest findings at the American Enterprise Institute and it is a gloomy forecast. She describes, “10.81 million homes are at risk of default over the next 6 years. Even if we try to be extremely conservative we can’t get the number below 8.7 million units.”
With defaults already piling up, the shadow inventory of homes has been growing rapidly, and given this new data the number is going to skyrocket. As this chart shows, the total has gone up from 2 million homes in 2009 to 3.35 million as of April, a 67.5% increase already.
The Atlantic explains this shadow inventory chart: “What’s happening to the homes of all those defaulted borrowers that we hear about? Many of those properties are a part of so-called shadow inventory. This is the sort of limbo between when a home’s loan defaults and when the property is put on the market for purchase. The increase shown above is staggering. The shaded area shows mortgages more than 12 months delinquent or in foreclosure (darker blue) and those seized by the bank (lighter blue).”
Laurie Goodman’s full presentation is available in pdf format here.
Obviously this is going to significantly drive home prices further down, as I reported a few weeks ago, 28% of US homeowners already owe more on their mortgage than their homes are worth. A recent survey by Fannie Mae found that 27% of American homeowners are considering walking away from their mortgage. A perfect storm is brewing. As prices continue to drop, with 10 million now at risk of default, a strategic default movement could devastate the “too big to fail” banks that caused this mess in the first place.
With all this trouble headed their way, no wonder they are fighting hard to, as Reuters put it, get “immunity over irregularities in handling foreclosures, even as evidence has emerged that banks are continuing to file questionable documents.” They can attempt to fraudulently paper over reality, play accounting games, “extend and pretend” and buy off all the state attorneys and regulators they want, even have the Fed, Treasury, Congress and the president in their pocket; they can buy all the king’s horses and all the king’s men, but they can’t put Humpty Dumpty back together again.
This is what a collapsing Ponzi scheme looks like.
We must break up the “too big to fail” banks and end this RICO racket now. As the data proves, the longer we wait, the uglier this is going to get.
Tim Cavanaugh | April 26, 2010
If you’ve been trying to keep track of the “shadow inventory” of homes that are destined to be foreclosed and come onto the market within the next few years, you’ll be glad to know that the hard-to-determine statistic has been narrowed down: It’s either 1.7 million houses or 12 million houses.
That’s the skinny from a site called CapitalGainsAndGames.com, which cites some comments made last week by Amherst Securities analyst Laurie Goodman:
Laurie Goodman told the National Economists Club today in D.C. 7.2 million are already in the delinquency pipeline, and 250,000 are going delinquent each month bringing the total to 12 million. “Once you’re 60 days delinquent, a foreclosure is highly probable,” she said. Goodman is a Senior Managing Director of Amherst Securities and is widely recognized as the best housing finance economist on Wall Street.
She emphasized that negative equity is the main problem, and that any program which doesn’t significantly reduce principal won’t work. She estimated that under the most optimistic assumptions, President Obama’s HAMP program would avert 1.1 million foreclosures. Goodman added that banks aren’t renegotiating underwater mortgages in which they hold a second lien, “a huge conflict of interest problem.”
She noted that FHA loans are still the whole market and suggested that the homebuyer tax credit, due to expire at the end of this month, and other housing incentives have borrowed so much demand forward that the only way left to stimulate the market would be for FHA to ease its requirements and allow investors to participate.
I hate Goodman’s infinite-intervention plan to employ “one modification plan after another until a plan is successful.” But I love her dire view of the foreclosure landscape, and her useful debunking of the common belief that unemployment is the main cause of mortgage defaults.
In congressional testimony in December, Goodman had the shadow inventory at 7.2 million properties. I’m not sure how she’s getting to 12 million houses, especially when DataQuick says first-quarter notices of default declined more than 4 percent in California, the most populous and one of the most troubled of the delinquency states.
The shadow inventory will be an important drag on house prices for years, which will in turn prompt more efforts to use your money to prop up the sagging market (or as we say in the second quarter of 2010, “spur the recovery”). So it’s important to get a handle on how large this inventory is. Best estimate as of this time: One crapload.
Tim Cavanaugh | April 15, 2010
Foreclosure activity in the U.S. real estate market increased by 7 percent in the first quarter of 2010, according to RealtyTrac’s U.S. Foreclosure Market Report. Default notices, scheduled auctions and bank repossessions were reported on 932,234 properties in the first quarter. The pace of foreclosure activity seems to have increased through the three-month period ending March 31. The breakdown:
304,799 default notices
369,491 foreclosure auctions scheduled
257,944 bank repossessions (REOs)
“[B]anks are starting to wade through the backlog of troubled home loans at a faster pace,” says AP’s Alex Veiga.
Is this the kind of wading you can do with just hip boots? The “shadow inventory” — the number of houses that are highly likely to come onto the market soon — is as hard to pin down as its name implies. First American CoreLogic [pdf] puts the figure at 1.7 million units. Amherst Securities senior analyst Laurie Goodman estimated in congressional testimony [pdf] that there are closer to 7 million mortgages so dire that they will inevitably fail — though Goodman made the case in December that “there will be one modification plan after another until a plan is successful.” The latest HAMP report [pdf] offers more evidence that the number of unsalvageable mortgages is growing. (The shadow inventory estimates do not include good borrowers who will be selling in the near future.) Here’s an estimate of 7.2 million delinquent mortgages as of January.
Goodman has been an advocate for much more radical public spending to rescue bad mortgages. Fortunately the political winds have blown even more strongly against this position since December, and the Obama Administration is now experimenting with a potentially less destructive strategy of simply giving bad borrowers relocation assistance. This is still a misuse of the public’s money, but at least it’s pointing in the right direction. However many hopeless mortgages there are out there, they need to be processed as quickly as possible.