'Should Come as No Shock to Anyone' Wall Street Pit (blog)

17.11.09

As a result, moving into 2010, a fresh round of mortgage losses should come as no shock to anyone either. I’ve noted that we are facing a predictable second wave of defaults, based on a mountain of scheduled resets for Alt-A and Option-ARM mortgages, which began in recent weeks and will continue through 2010 and 2011. One of the counter-arguments against such concerns is the assertion that “the majority of these mortgages have already been modified.” Unfortunately, this assertion is not true.

Moreover, the 2.7 million delinquent mortgages counted above were those that were already distressed early in the third quarter of this year. Moreover, many of these modifications are simply term extensions that reset the clock. A recent Fed study pointed out that only about 3% of delinquent mortgages have received modifications that would reduce their monthly payments in the first year. As noted a few weeks ago, “coupling state-by-state delinquency rates and foreclosure starts (as reported by the Mortgage Bankers Association) with other data, the Center for Responsible Lending [which correctly predicted, but slightly underestimated the size of the first wave of defaults] projects that for most states, foreclosure totals will more than triple over the coming 4 years, for a total of 8.1 million foreclosures.”

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