Tuesday, March 16, 2010

One In Ten Mortgages Not Being Paid

The following chart provides a real time update on the state of the housing meltdown.  The shaded purple area shows the percentage of mortgages that are currently in foreclosure.  The shaded yellow area shows the percentage of mortgages that are 90 days or more delinquent:


This chart shows that currently 10% of mortgage holders are not making a monthly payment.

As you can see the lines historically have tracked each other on a 1:1 basis.  As homes became delinquent, the banks filed for foreclosure.

Only recently have the lines separated.  The number of homes 90 days delinquent have skyrocketed, while the number of homes in forclosure has only risen mildly thus far.

This difference is known as the shadow inventory.  It is the tsunami of homes that will be coming on to  the market over the next few years at fire sale prices. 

The following chart shows the quarterly losses posted by Fannie Mae and Freddie Mac.  As you can see, the two monsters began hemorrhaging money in the third quarter of 2008 and they have not stopped.

With the Fed's mortgage purchase program set to expire, and the coming onslaught of new foreclosures entering the market, look for the losses at Fannie and Freddie to reach unimaginable levels.

This is the reason why our government took away the loss limits for the two mortgage giants on Christmas Eve last year. 

The continuous rolling losses will be added to our yearly Federal deficit.  As foreign countries continue to sell off our debt, which I discussed yesterday, it leaves only the Federal Reserve to purchase the endless trillions.

In the end it is the same whether they purchase the mortgages directly from Freddie and Fannie (as they are now) or they purchase treasury debt from the Federal government when they have to absorb the losses.

In the meantime it keeps the American public confused.  Unfortunately, the foreign buyers which have kept us on life support see right through the smoke screens.  The debts will ultimately be purchased by the Fed, and all dollar denominated holdings will be decimated.

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