It might be worse than thought.

[Jay]

http://www.businessinsider.com/milli...alizes-2009-12

Debt to income is even worse than I presumed on all loan types and I was very pessimistic to begin with. The real story isn't just about the infamous reset chart, and that is an understatement. This article confirms many of the previous musings here, and breaks the situation down nicely.

[flintlock]

Re: It might be worse than thought.

Exactly why I urge caution when friends talk of getting back into RE investing.

[ASH]

Re: It might be worse than thought.

http://www.businessinsider.com/milli...alizes-2009-12

Great post, Jay. Thanks.

[vinoveri]

Re: It might be worse than thought.

I hate to be a polly anna but ... don't worry because principal reductions will save the day, for all those who were irresponsible, and of course for CONfidence in the system and financial markets.

Principal reductions will be forced on the banks and those reductions will be underwritten by the public to make banks and creditors whole or nearly so (in the case of Fannie and Freddie, it will simply be one step as the gov writes down the principal and adjusts its books accordingly taking the loss, again on the public ledger).

The politicians on both sides, populist demagogues who think everyone has a right to a home to those in the back pocket of the banking lobbies, will come to a quick realization of a win-win compromise when they realize they can please both the "public", e.g., underwater homeowners, and their neighbors who don't want foreclosure in the neighborhood to diminish their home value AND the banking system and investor/creditor class.

And voila, the responsible, thrifty middle class is shown the contempt again. Moral hazard is now a national pastime.

[cjppjc]

Re: It might be worse than thought.

Certainly not enough discussion has gone on about the increase from the industry standard 28/36. As the ratio kept expanding I always wondered what these people ate.

[Jay]

Re: It might be worse than thought.

I hate to be a polly anna but ... don't worry because principal reductions will save the day, for all those who were irresponsible, and of course for CONfidence in the system and financial markets.

Principal reductions will be forced on the banks and those reductions will be underwritten by the public to make banks and creditors whole or nearly so (in the case of Fannie and Freddie, it will simply be one step as the gov writes down the principal and adjusts its books accordingly taking the loss, again on the public ledger).

The politicians on both sides, populist demagogues who think everyone has a right to a home to those in the back pocket of the banking lobbies, will come to a quick realization of a win-win compromise when they realize they can please both the "public", e.g., underwater homeowners, and their neighbors who don't want foreclosure in the neighborhood to diminish their home value AND the banking system and investor/creditor class.

And voila, the responsible, thrifty middle class is shown the contempt again. Moral hazard is now a national pastime.

Hudson has always said that the solution over the eons ends up being a debt jubilee. That is easier done when one all powerful ruler makes the decision. More teeth gnashing ahead.

[aaron]

Re: It might be worse than thought.

I hate to be a polly anna but ... don't worry because principal reductions will save the day, for all those who were irresponsible, and of course for CONfidence in the system and financial markets.

Principal reductions will be forced on the banks and those reductions will be underwritten by the public to make banks and creditors whole or nearly so (in the case of Fannie and Freddie, it will simply be one step as the gov writes down the principal and adjusts its books accordingly taking the loss, again on the public ledger).

The politicians on both sides, populist demagogues who think everyone has a right to a home to those in the back pocket of the banking lobbies, will come to a quick realization of a win-win compromise when they realize they can please both the "public", e.g., underwater homeowners, and their neighbors who don't want foreclosure in the neighborhood to diminish their home value AND the banking system and investor/creditor class.

And voila, the responsible, thrifty middle class is shown the contempt again. Moral hazard is now a national pastime.

Government debt will be monetized by the fed before any principal reductions make their way to the masses. It is the only "fair" debt jubilee that is hated/tolerated by all.

[jk]

Re: It might be worse than thought.

Government debt will be monetized by the fed before any principal reductions make their way to the masses. It is the only "fair" debt jubilee that is hated/tolerated by all.

monetization is, in essence, a jubilee for the government - the sovereign mandates forgiveness for its own debts by printing the money to pay them off.

[grapejelly]

Re: It might be worse than thought.

the predictor of default is how underwater a borrower is. The fact is, most loans were made with very little equity. Maybe 25% of borrowers could default based upon the fact they are very underwater.

[mmr]

Re: It might be worse than thought.

All of those 100% LTV 2nd liens and HELOCs probably used to cover the food budget. Not sure how they're eating now.