Foreclosure Tsunami Forecasted

COLLEGE STATION (Real Estate Center) – Based on results from its recent mortgage study (see article), the Center for Responsible Lending (CRL) has predicted that one out of five subprime loans issued during 2005 and 2006 will fail, resulting in foreclosure for millions of American homeowners.

see the complete article at the bottom of this post...

This isn’t exactly what it looks like.  There are a lot of businesses, inside and outside, of the housing sector that benefit from the foreclosures.  The impact will be mostly felt in the insurance industry and large hedge funds which are betting that foreclosures will increase and thus profit.  Similar to certain option trading.  You won’t here about that in the mainstream because its not too politically correct to bet on thousands of people will lose their homes, but it’s the realty and lots of money is being made because of it.  That is also why the economy will not suffer as bad as certain economist predict. 

Consumer spending is what drives the economy, right.

Foreclosures are bad because they place a lot of pressure on the financial institutions, right. 

If the foreclosures are being hedged against and the hedge money (profit) is returned to the market in the real estate/manufacturing sector then the impact will be limited, right.

If you were just foreclosed on and you don’t have that high mortgage payment anymore then you will be spending that additional discretionary income in the market place, right.

Conclusion:  No doomsday in 2007 or 2008 like many predict. 

It’s a different day then many “experts” are used too.  Who would have thought that the second largest capitalized company in the US is a software company (Microsoft)?  A software company?  What are they capitalizing?  Not to mention that Google is thriving more than ever.  The rules haven’t changed, but there are different more creative players who are using different plays to win the game.

Foreclosures will have an impact, but the landing will be much softer than many believe.    

I’m bullish on the economy and especially real estate! If you read the facts then there is no real argument.   

PS – This article is an excerpt from the A & M Recon Newsletter.  If you don’t already subscribe, it’s free.

FORECLOSURE TSUNAMI FORECASTED
COLLEGE STATION (Real Estate Center) – Based on results from its recent mortgage study (see article), the Center for Responsible Lending (CRL) has predicted that one out of five subprime loans issued during 2005 and 2006 will fail, resulting in foreclosure for millions of American homeowners.

Dr. Mark Dotzour, chief economist with the Real Estate Center, says the real vulnerability in the residential housing market is in the entry-level housing category in regions where a large percentage of buyers have purchased with little or no down payment.

“In recent years, investor thirst for the higher yields of mortgage-backed bonds has allowed mortgage lenders to relax credit standards and issue loans that have a much higher risk of foreclosure,” Dotzour said. “It stands to reason that when you make riskier loans, you are going to have more foreclosures.”

Dotzour does not think mortgage companies or mortgage bond holders will be hurt when the expected tsunami of foreclosures hits. Instead, hedge funds, pension funds and endowment associations that have been chasing yield by accepting more risk, or large commercial banks offering complex derivatives to allow traders to hedge their risk in mortgage bonds are likely to feel the pinch.

“Nobody knows exactly where the ultimate risk really lies in the financial markets,” Dotzour said. “But one thing is for certain. Those who will be hit the hardest will be families that lose their homes to foreclosure.”