If you think housing is out of the woods, lend me your ear for a second, and think about these numbers.
Last week, First American CoreLogic released a report of nationwide housing statistics. It focuses on "negative equity," or homeowners who owe more on their mortgage than their house is worth. We refer to these folks as "underwater."
Nationwide, 11.2 million, or 24% of all mortgages, are now underwater. That's horrible -- but it isn't the scariest finding.
The report also details those who are really, really underwater. For example, 10.4% of all borrowers are underwater by 25% or more. That's a total of 4.9 million homeowners, whose aggregate negative equity totaled $656 billion, or almost 5% of GDP.
Now factor in last summer's findings from a trio of economists who calculated homeowners' propensity to walk away -- to just stop paying their mortgages -- as the level of negative equity rises. They found that when a homeowner is $50,000 underwater, 9.38% declare intentions to walk away. At $100,000, 25.81% call it quits. At $200,000, the number grows to 41.23%. (Since the social acceptance of walking away has surely grown since last summer, it's reasonable to think these numbers are now higher.)
Simple math from here: 4.9 million homeowners with $656 billion of negative equity gives us an average of $134,000. Thus, we should roughly expect something like 33% of these homeowners, representing $215 billion of that negative equity, to eventually walk away. That's one-fifth of a trillion dollars of home loans that could vaporize before long.
Who'll bear this burden? The three big private mortgage lenders -- Bank of America
But remember that the largest bearers of home mortgage risk are Fannie Mae
Last December, the administration agreed to cover an unlimited amount of losses at Fannie and Freddie for the next three years. At this rate, they'll need to.
