Tuesday, November 24, 2009

WSJ's disturbing mortgage stats

Today's mortgage statistics in the Wall Street Journal saying "1 in 4 Borrowers Under Water" is disturbing, no doubt about that. The article does note the number of owner occupied homes with no mortgage, which factored into the equation would put the overall number of underwater homeowners at slighty less than 10%, and there is no ability to calculate total homeowner equity from the article. That's not the headline, but it's important. That the stats quoted are significantly less than the actual picture, however, does not change the fact that this still represents a troubling picture.

The most relevant comment in the article appeared absurd at first. A mortgage broker in Scottsdale, AZ is quoted as saying "The only way we will make headway is if we allow for a streamlined refinance where the appraisal is irrelevant". Anything in the past and present would suggest that his comment is somewhere between bizarre and insane. How could the system work. Looking at the huge amount of mortgage backed securities that for all practical purposes are completely illiquid suggests that his comment has some merit.

When there is almost no market, there is no real price. Some say that "time will heal all wounds" but how much time do we have. Institutional investors on the hook for long term mortgage security positions with amazingly generous valuations by the brokers may be able to wait but homeowners don't have that luxury. That many investors, brokers, adn homeowners made bad decisions is no longer the issue. Still being in a priceless market, in the bad sense, is a terrible situation.


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