Since it’s a quiet afternoon, why don’t you take a few minutes to read Amherst Securities report: The Housing Crisis—Sizing the Problem, Proposing Solutions.
It’s the report that inspired Roubini to come up with his estimate for $1 trillion worth of further housing-related losses for the banks.
Basically the report arrives at a number of 11.5 homeowners in trouble by slicing the market up into non-performing loans, re-performing loans, and performing loans, and calculated what percentage of each will probably go bad.
Let’s use this information to try to quantify the extent of the housing crisis. If we assume that—95% of the non-performing loans, 70% of re-performing loans, 50% of always performing loans with LTVs>120, 25% of the 100-120 bucket and 5% of loans with LTV ≤100 will eventually liquidate—we conservatively conclude that 11.57 million borrowers are in danger of losing his/her home. That is about 1 out of every 5 borrowers; an impossible number, and one that is politically unfeasible. Moreover, if the resolution of the currently delinquent loans is not handled well, home prices will drop further thus reinforcing the cycle. The death spiral of lower home prices, more borrowers underwater, higher transition rates, more distressed sales and lower home prices must be arrested. There are few issues we can imagine that should be of higher priority to market participants and policy makers.
Here’s the full report
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