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| These signs are not going away |
The total value of the US residential housing market is approximately $17 trillion. Against this, there is outstanding approximately $9.5 trillion in first lien debt and another $900 billion in second lien debt. The $9.5 trillion of first lien debt is backed by approximately 55 million loans implying an average loan balance of roughly $172,000.
As of June 2011, first lien mortgages totaling $943 billion were classified as non-performing and another $653 billion as re-performing. A re-performing loan is a loan that had been seriously delinquent (more than 60 days) but has since resumed making payments (oftentimes, the borrower has been placed on a bankruptcy plan or, increasingly, the loan has been modified). The balance of the $7.35 trillion are categorized as always performing.
Of the always performing loans, Amherst calculates that 5% of the total have mark to market loan to values (LTV) greater than 120%. In other words, if the borrower purchased a home for $120,000 5 years ago, it is now worth $100,000. Another 10% have mark to market LTV’s between 100% and 120%. All these borrowers are effectively in a negative equity position.
Amherst projects a conservative scenario that suggests that close to 9 million homes will be foreclosed upon over the coming years. To get to that number, they assume 80% of non-performing, 50% of reperforming, 30% of performing loans with LTV’s greater than 120%, 15% of performing loans with LTV’s between 100 and 120% and 4% of the balance will ultimately result in a processed foreclosure. The results of the math imply 8.7 million homes will ultimately be foreclosed. Amherst cautions that their assumptions are actually conservative. More realistic scenarios would suggest total foreclosures approaching 11 million homes.
The social and economic fallout from this crisis cannot be overstated.
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