Here’s a scary stat to ponder as consider how realistic banks are being about their losses.
FT Alphaville: In a report released on Tuesday, the rating agency estimated approximately 60 per cent of the remaining performing borrowers from the 2006-2007 vintages are underwater.
Two aspects of that assertion immediately stand out. The first is that these borrowers are still considered “performing”, meaning they aren’t late on their payments and are certainly not in foreclosure. Given the not-irrational propensity of borrowers in negative equity to walk away from their homes, that statistic bodes ill for the already depressed US housing market.
The next few months of Case-Shiller Data may be crucial. If housing is looking as though it might stabilise and bounce back a bit, even undertware homeowners are likely to hold their breath and wait it out, not wanting to go through all the hassle (and take the credit hit) of jinglemail. But if we get that second leg down, as so many are expecting, then underwater performers could become non-performers in a jif.