Foreclosure Alert

This article in Reuters about foreclosures affecting 6.5 million loans by 2012 is pretty alarming. Of course the article brings another Great Depression parallel. Here is the worst part -

Falling U.S. home prices and a lack of available credit may result in foreclosures on 6.5 million loans by the end of 2012, according to a Credit Suisse research report on Tuesday.

The foreclosures could put 12.7 percent of all residential borrowers out of their homes, Credit Suisse analysts, led by Rod Dubitsky, said in the report. That compares with a foreclosure rate of 2.04 percent in the last quarter of 2007, they said, citing Mortgage Bankers Association data.

According to the US Census "0f the single family owner-occupied homes in the United States, about 70 percent were mortgaged and 30 percent were not." With 70% of the houses mortgaged and 12.7 of those falling into foreclosure - we talking numbers of roughly 9% of all homes facing foreclosure - that is just under 1 out of every 10 houses falling into foreclosure. Another huge and very terrifying number. At the height of the Great Depression in 1932-33, roughly 10 percent of all mortgages entered the foreclosure process.

The new forecast includes 2.7 million subprime loans whose risky characteristics sparked the worst housing market since the Great Depression. Subprime foreclosures, on top of the 676,000 already in or through the process, will hit 1.39 million in the next two years alone, an upward revision from the 730,000 predicted by Credit Suisse in October.

If the revised number went from 730,000 in October 2007 - to 1.39 million in April 2008. An upward revision that almost doubled the original estimate. Remember the Option ARMs are yet to recast so those numbers of potential defaults are not being fully included in the foreclosure forecasts.

Falling home prices have made an increasing number of U.S. homeowners more vulnerable to default, they said. Nearly a third of subprime borrowers owed more than their home was worth at the end of last year, and that figure will double to 63 percent in 2009, they said.

The shutdown of mortgage bond markets that financed many risky borrowers during the housing boom has also made it harder to refinance into affordable loans, they added.

This is the beginning of the downward spiral. More people underwater will increase walkaways and foreclosures. With the huge increases in these numbers, both will become more acceptable and commonplace. Occurrences like the following video will be commonplace.