In the Shadow of Foreclosures (Minnesota)

New York Times ^ | 6 April 2008 | Staff

[shrinkermd]

This is a very short article. But on the left side there is a picture one can hit and get percentage of subprime mortgages in your area as well as the percent foreclosed.

For Minneapolis/St. Paul Minnesota 9-12% of all mortgages are subprime. Of these 17% are now in default.

[spanalot]

I still dont see what the big deal is - if 7% of 10% are in default, that means only .7% of total.

Are we gettting snookered?

[AmericaUnited]

Yes! That’s seems like a reasonable and normal number at the end of your typical housing boom.

[SkyPilot]

You beat me by one second.

[Notary Sojac]

The "big deal" is this:

there are still two more years of interest rate resets to go

there is lots of rot still out there in prime loans: anyone with good credit who bought a house at more than 3-4x their annual income, and homeowners with equity and good credit who refinanced, running their debt up to the max to buy all kinds of bling bling;

and, investment banks who are leveraged at 30 or 35 to one (a three percent drop in the value of their mortgage holdings suddenly becomes significant...)

It's much more than a "subprime" issue.

[PGalt]

Yes! That’s seems like a reasonable and normal number at the end of your typical housing boom.

Yes, and couple that with credit expansion that was unprecedented in our history, I am sure that the numbers may go higher yet.

[ninonitti]

Are we gettting snookered?

Only if you have a no money down loan on a condo that'll double in value in 2.5 years......

Actually most of the numbers being thrown around out there don't show the percentage of these subprime loans that are performing.

I mean a 20% default rate on 10% of the mortgage market is still only 2.0% of the entire market. Anyone got the real numbers?

[Grut]

17% of 12% is 2%; so at worst defaulted subprimes make up 2% of all the mortgages in the area. This bolsters my contention that it isn't the CRA and subprime mortgages that's the problem but the dawning realization that writing, in dollars, mortgages based on unsustainable house prices has created not new wealth but inflated dollars.

All this business about subprimes is just lenders pointing the finger at 'the other guy'.

[Notary Sojac]

And also as I mentioned above, for hedge fund that has $40 in MBS backed by $1.50 in real assets, a 2% drop in the value of those mortgages is pretty darn significant.

[dennisw]

Excellent pictorials!!

[Admin Moderator]

Due to a copyright complaint, New York Times images cannot be posted here.

[Jagman]

17% of 12% is 2% are in default.

[Moonman62]

And also as I mentioned above, for hedge fund that has $40 in MBS backed by $1.50 in real assets,

Who would that be?

[Moonman62]

This means that the subprime mortgage market is legitimate. But you would think from media reports and the financial Luddites here on FR that the default rate would be 100%.

[Moonman62]

I mean a 20% default rate on 10% of the mortgage market is still only 2.0% of the entire market.

I saw 2% reported recently as the overall foreclosure rate. But I'm pretty sure that is the default rate. The actual rate of homes in foreclosure is much less.

Reporting defaults as foreclosures should be a scandal in and of itself.

[usafsk]

It’s not the % in foreclosure that matters, but the fact that the % in foreclosure greater than expected that matters. Mortgages are funded by people who expect a certain return, either with their capital or with borrowed money. When foreclosures double (as they’ve done, and not just in subprime), the original capital holder gets screwed on rate of return. That may be their problem, except the entity getting screwed will then pull money out of the mortgage market, which makes mortgages more expensive and more difficult to obtain. That’s not a bad thing, it’s how the market corrects abuses. But it is the reason the Fed is having trouble driving mortgage lending rates down.

[dennisw]

bttt

[Moonman62]

The problem is that as the market started to turn down and volume dropped off, there was no way to value some of the mortgage backed securities. Adding in the uncertainty of interest rate resets made the valuation problem even worse.

At least now we are starting to see some write downs as the industry is starting to get a handle on valuations.

[spanalot]

where did the 30 to l leverage collapse come from when the average default rate is one per cent?

There is something else going on here

[spanalot]

no. The averrage default rate is much lower

[Strutt9]

"Are we gettting snookered?"

YES

[Wuli]

some foreclosures are a healthy and needed reaction to a real estate bubble

via foreclosures the banks must accept the lower value they can get for the property when they auction it

that process sets new values in the market and helps bring down outrageous expectations on properties yet to be sold

it is just one mechanism for the market corrections needed

meanwhile the economic idiots in congress are looking for ways to prevent natural market corrections - seeking to preserve the inflated value the lender funded and keep the deadbeat in their mcmansion

the success of their actions will greatly lengthen the time it will take for the inflated-value affects of the bubble to dissipate, slowing the recovery of the housing market