An unusual recession?

March 20, 2009 at 1:05 pm | Posted in economics, Housing, recession | Leave a comment
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Usually, in a recession, there are people who suffer – people who lose jobs or have their hours cut… Others see the value of their investments fall as well. However, for the majority of people, life goes on as usual. They may cut back a bit, may feel the impact of the markets on their portfolio, but most people don’t have too large a portfolio, especially outside of a 401(k) or IRA, so the impact isn’t immediate. Yes, the 401(k) is down, but it’ll recover by the time I need the money seems to be the mantra.

What may be unusual about this recession is that everybody is hurting. You cannot be complacent about a “safe” job when you have suffered anything from 30% (for those with no or almost paid-off mortgages) to 75% or even greater than 100% loss of equity in your greatest asset – your home.

This is not an event that has happened to some of your neighbors and you hope does not happen to you.  You may still have your job, you may be years from retirement – but the recession has already hurt you – and me, and all of us.

$700B real estate fund!

September 21, 2008 at 6:02 pm | Posted in credit, Housing | Leave a comment
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In round numbers, total residential mortgages outstanding are about $11 trillion (See the time series on OFHEO’s website here).

Roughly, 65% of Americans live in owned housing, of which a third own the property free and clear. About 45% of about 108 million households have mortgage debt. Thanks to easy credit and the record low interest rates in 2003-2004, a majority of properties were recently refinanced, so the average age of mortgages are 3-5 years, with relatively few loans of pre-2001 vintage.

So basically, the government wants the authority to buy up about 6.3% of all outstanding mortgages, by initial value.

The government won’t buy a sample of mortgages – they will buy the worst of the lot, so we can expect that a very large number of the mortgages in the taxpayer’s portfolio will go delinquent at some point – in fact, many may already be delinquent by the time the government acquires them. With home prices sinking and very little equity to start with, in these toxic mortgages, the homeowners (I use the word loosely, its more like occupants) are basically upside down – They owe more in the mortgage than the house is worth, so many of them will walk away and go through foreclosure, unless the government also works out some kind of foreclosure avoidance package.

Otherwise, the US government is about to become the world’s largest residential real estate owner.

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