It Could Just Be The Beginning Of The Credit Crisis
SOURCE: The Motley Fool
There is a strong worry afoot surrounding the failing housing market. Some borrowers who have negative equity in their homes are starting to walk away from their houses and their mortgages. By deliberately pursuing foreclosure, these borrowers are actually contributing to the vicious cycle.
Lenders are generally highly leveraged yet they can manage a 1-2% default rate. If this escalates to a 5-6% default rate a reduction in the mortgage liquidity market will make it harder for housing sales to improve.
If there is a 15% estimated decline in the housing market that will translate into 21% of people with mortgages who owe more than their house is actually worth. If a recession develops and the housing market falls 30%, then nearly two of every five mortgages will be underwater.
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There is a strong worry afoot surrounding the failing housing market. Some borrowers who have negative equity in their homes are starting to walk away from their houses and their mortgages. By deliberately pursuing foreclosure, these borrowers are actually contributing to the vicious cycle.
Lenders are generally highly leveraged yet they can manage a 1-2% default rate. If this escalates to a 5-6% default rate a reduction in the mortgage liquidity market will make it harder for housing sales to improve.
If there is a 15% estimated decline in the housing market that will translate into 21% of people with mortgages who owe more than their house is actually worth. If a recession develops and the housing market falls 30%, then nearly two of every five mortgages will be underwater.
Read full report »
