Economic Rebalancing

The global economy is horribly out of balance, with the United States going deeper into debt each year as a result of a huge trade gap. This blog describes the process of global economic rebalancing. If you have any comments or questions about the posts here, please don't hesitate to use the comments section.

Sunday, March 25, 2007

Foreclosure Tsunami Now in the Pipeline

According to some data, foreclosures were up 42% nationally in 2006. That pales in comparison to what lies in store, based on data from sub-prime lender Novastar Financial's recent securitizations.

Some things to note when looking at these charts:
1. Securitizations from 2004 saw a big spike in defaults around months 24-27 when many of the 2-year ARMs reset. Many borrowers simply couldn't make their payments at the higher rates. 2005 & 2006 securitizations have yet to see their spikes.
2. 2006 was a big year for emergency refinancings for people who couldn't make their adjusted ARM payments. Consequently securitizations from 2006 are of extremely poor quality and are going bad very rapidly.
3. Things started getting ugly around November when credit started tightening measurably and borrowers had more trouble getting emergency refis.
4. 2005 mortgages were mostly made at the peak of the housing bubble so homeowners have reduced chances of doing cash-out refis.

OK, that's all bad enough, but now consider:
5. NFI has had to buy back a many defaulted loans out of the newer securitizations due to fraudulent applications and early defaults. So total defaults within the original securitizations are likely much worse.
6. Many of the loans in the earlier securitizations have been prepaid through emergency refis. So total defaults within the original securitizations are likely much worse.
7. NFI's lending practices were probably more conservative than those of the 44 lenders who have already gone kaput".

OK, enough already. Here's the charts:
1. 60+day contractual delinquencies, foreclosures and real estate owned. Each individual securitization is tracked month by month.


2. Average monthly increases in default percentages remaining in securitizations:


3. Average level of 30-59 day delinquencies:


4. Level of 30-59 day delinquencies, most of which will add to March's 60+ totals:

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