48% of US mortgage holders underwater by 2011? so says deutsche bank.

From Frank Veneroso:

1. Deutsche Bank now predicts that 48% of all mortgaged American homeowners will be “under water” by 2011.

2. One might assume that means that the aggregate loan-to-value ratio of all mortgaged households will be a little less than 100%.

3. I have been focusing first and foremost on the aggregate loan-to-value ratio of all households with mortgages rather than the number of mortgaged homeowners who will eventually be underwater.

4. I calculated that, on mean reversion in house prices, this aggregate loan-to-value ratio would rise to 120% to 125% -- a lot worse than what the Deutsche Bank analysis seems to imply. So I studied their analysis to ascertain why I went wrong or why they went wrong.

5. Though their analysis has a somewhat different objective and employs a different methodology, their analysis in fact comes to almost exactly the same conclusion as I have reached: when one focuses not on the share of all homeowners who will be underwater but the aggregate of mortgaged home values that will be under water, on mean reversion in home prices the aggregate loan-to-value ratio will probably be north of 120%. Here is why...

http://www.nakedcapitalism.com/2009/08/guest-post-frank-veneroso-on-mortgage.html

You have vast swathes of the Midwest where home value hasn't gone down, but rather up. The rise in housing prices has slowed here, but it hasn't stopped and certainly hasn't reversed.

Somehow I doubt it. California and Florida are taking the hardest hits in this, and NYC. However upstate New York seems to be holding steady, and according to friends of mine, so is Texas:shrug:

I guess we'll have to wait and see.

August 14, 2009, 11:24am CDT
Report: Twenty-six percent of Houston-area mortgages underwater

The Santa Ana, Calif.-based real estate information company says 239,912 mortgaged properties in the Houston-Sugar Land-Baytown area, or 26.15 percent, were in negative equity as of June 30, 2009, while 310,715 mortgages, or 33.86 percent, were in a near-negative or negative equity situation. The total value of property at risk of default in the area was estimated at more than $34 billion.

In Texas, 777,000 mortgages were in negative equity, putting the state fourth in terms of the number of negative equity mortgages. California led with 2.9 million mortgages underwater, followed by Florida with 2.3 million and Ohio with 862,000.

Nationwide, more than 15.2 million mortgaged properties, or 32.2 percent, with a total property value of $3.4 trillion, were in negative equity, according to the report, while an additional 2.5 million were approaching negative equity, bringing the total for near-negative and negative equity to nearly 38 percent of all mortgaged residential properties.


http://www.bizjournals.com/houston/stories/2009/08/10/daily53.html


7/29: Dallas-area home prices drop 4.1% in new report

http://www.dallasnews.com/sharedcontent/dws/classifieds/news/homecenter/realestate/stories/072909dnbuscaseshiller.d832b9.html


houston: june 08 v. 09

Total sales 7,418 6,306 -15.0%
Total $ volume $1,644,522,286 $1,344,025,973 -18.3%
Av 1-family price $227,340 $221,783 -2.4%

http://www.har.com/mls/dispPressRelease.cfm

price rises in beaumont don't help the mortgagee in dallas.

the fact that four states have a big chunk of population doesn't mean all mortgagees there would be underwater; it means that prices holding steady in the less densely populated midwest doesn't necessarily have a big impact on the national picture.

Texas is doing remarkably well in this recession.

No one can know if a house is in negative equity unless that loan is in default, and the house is sold. It's a guess, otherwise, and anyone can apply their own standards for that process.

This theme that next year the bottom is falling out is a meme the GOP and its flunkies are pushing, because they can't stand to Obama succeed.

gop front.

they bought ten`s of thousands of american toxic mortgages.

Pronto!

It just keeps them in their homes for longer than they may want to be there.

They still have the same payments to make as they did when they first signed their loan or refinanced. The "underwater" analysis does suggest that these heavily upside-down markets will be very hard to recover, but it doesn't address the source of the defaults - which can be measured by debt-to-income - not loan-to-value.

The adjustments in home values are correcting down in proportion to the prevailing income levels of the region. Borrowers that over-leveraged or went in with a high LTV have lost their equity, pure and simple. The only way out of their mortgage is to sell, but they'll never get their original value back.

The upside is homes values (not necessarily prices, yet) are now a bit more in-line with incomes, which on paper (not in-practice) would suggest that - purely looking at debt-to-income - there should be more people in the market to buy. But the underwater owner is unwilling or unable to sell - they'll have to go somewhere, too.

Before the LTV crisis gets to the level that these analysts predict, we need to get them out of their homes and into different ones that are more soundly in-line with their income levels. I can see a relief program that would offer partial forgiveness for underwater homeowners to get out of their situation if homeowners and mortgagers are willing to share the loss upon sale - a partial forgiveness of old debt by the servicer (to cover it down to 100% LTV), in exchange for getting a new loan on a different home with the servicer. People will probably have to trade down in order to qualify, but this will facilitate the exchange of bad paper to good, get the high LTV loans out of the servicing portfolios and off of the borrowers shoulders. This will also move a stagnant real estate market without having to depend on speculators.

Right now, lenders, investors and borrowers are all suffering because of declining property values, but neither is willing to realize a loss. They have to share it - just as they have to share the responsibility of issuing and accepting a risky loan in the first place.

If interest rates remain low, the loans will properly roll over.

This is more "the sky is falling" from the same guys who created the mess we lived through in 2008.

but many did not. At least not "living the American Dream" type of living.

No one is predicting or stating that an "underwater" mortgage automatically means default. But, it does mean future years of "doom and gloom." To understand why, one has to understand that 70% of the economy was driven by consumers. Many of those same consumers over-extended themselves with HELOC's, and Alt-A's. Read the fine print on many HELOC's. If the value of the real-estate falls below the amount of the lien, the underwriter of a HELOC has the right (and often the legal duty) to demand a balloon payment to bring the note into line. That is the difference between a secured note and revolving credit.

How fragile was the "House of Cards?" All it took was 4$ per gallon gasoline to push many consumers off the cliff. Had the economy had a sound base, that single event would have just been a slight speed bump.

The drop in property values and sales tax revenues is trashing State and local budgets. This is not causing ripples, it's shaping up to be a tsunami.

No amount of "green shoots" hyperbole is going to bring the consumer to the mall, till debt gets pared. At the current rate of a 5% per annum decrease in personal debt, that is going to be a long and painful process.

Ignore the caution signs all you want, but don't cry when the pink slip ends up in your in-box.

If you think lenders are going to pull performing loans because someone somewhere says they have equity less than the loan, you really don't understand lenders.

If the loan is performing, the loan is good. Unperforming loans are the problem, and they get defaulted and foreclosed, usually.

In CA, NV, AZ and FL, if the mortgage is underwater, many of the homeowners can just abandon the houst to the lender without the lenger being able to go after their other assets to satisfy the deficiency between the foreclosure proceeds and the mortgage balance.

Not true in most northern states and TX. In the majority of states, if the homeowner defaults on the mortgage, the lender can foreclose on the house, get a judgement for the deficiency, and either collect on the homeowner's other assets/income or force the homeowner into personal bankruptcy.

Therefore, in most states, even if the mortgage is underwater, the homeowner will continue to make the payments and try to avoid personal bankruptcy.