'The Forbearance Tsunami: 4.7 million mortgages are now in forbearance with an unpaid principal of $1 trillion.

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    • #319202
      • Total Posts: 5,534


      Let us clear something up regarding the last financial crisis with housing at the center of the market unraveling. The vast majority of the foreclosures that happened in the Great Recession occurred on standard 30-year fixed rate mortgages. There is this mythology that only subprime and NINJA (no income, no job, no asset) loans were the culprit of the entire collapse. This narrative fits into the crony capitalist mentality that somehow, only losers caused the crisis and that of course all of the suckers that got lured into a toxic mortgage somehow deserved losing their homes (while banks of course got bailed out with billions of tax payer dollars). A swift kick to the poor, and corporate welfare for the banks. It almost fits into this modern psychology of dis-information and revisionist history that we are now seeing. So it should be no shock to rational individuals that now, we suddenly have a whopping 4.7 million mortgages in forbearance (aka not paying their mortgage payment). This is not a good thing. The assumption is that people are going to start paying their mortgages back on time once the virus goes away but is that the case with so many jobs being lost? First, let us show you some data on the previous crisis for those that somehow forgot who lost their homes based on the type of mortgage on the property.

      Here is some data from the National Bureau of Economic Research. What they found that while subprime borrowers did lose their homes first in the crisis, prime borrowers started dwarfing the subprime market through 2009 to 2012:

      Why is that? First, the subprime borrowers lost their homes rather quickly but then those with standard mortgages still needed to make their mortgage payments and with no jobs or reduced incomes, they were unable to keep up as well. The chart above shows a very clear picture that while subprime mortgages caused a big problem, the impact was felt across many American households including those that took on mortgages under the “puritanical” guidelines that somehow are not brought up when looking back a decade ago. It should be noted that in every recession we face, you see a spike in foreclosures. And this is going to be a bad recession from the looks of it.

      Now why is it important to understand this? First of all, the number of jobs lost in two months now has passed the number of jobs lost in the entire Great Recession. The fact that we now have 4.7 million Americans that have essentially paused their mortgage payments is startling. There are new guidelines in place that will allow these households to work with their servicers instead of doing an insane balloon payment in 3 or 6 months (how are you going to pay 6 months of backed up payments if you are having issues making one payment?). Fannie Mae, Freddie Mac, and the FHA are actually going to allow more creative options to pay your mortgage once the forbearance is over. Yet that is a big assumption that in 12-months, all of a sudden these 4.7 million household are going to be able to keep up with their regular payments assuming we recoup the insane numbers of jobs lost:

      Jesus: Hey, Dad? God: Yes, Son? Jesus: Western civilization followed me home. Can I keep it? God: Certainly not! And put it down this minute--you don't know where it's been! Tom Robbins in Another Roadside Attraction

    • #319281
      Ohio Barbarian
      • Total Posts: 13,725

      Millions more will be driven from their homes, and no one in the government will do a thing to help them. Yet hardly anyone is talking about this. Not Republicans. Not Democrats, including progressive Democrats. At least, I haven’t heard it.

      It is better to vote for what you want and not get it than to vote for what you don't want and get it.--Eugene Debs

      If Democrats don’t stand for the people, why should people stand for them?--Jim Hightower

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