Deutsche Bank Expects the Worst
A recent article on HousingWire, a blog for the mortgage market, states that Deutsche Bank expects that due to continued declines in home values, 48% of all mortgages in the United States will be under water by the first quarter of 2011 for a total of 25 million homes worth less than the value of the underlying mortgage. Deutsche expects that a bigger number of prime conforming and jumbo mortgages will be part of the mix.
Of course, this brings up the subject of “strategic default”, or those borrowers who simply choose to walk away from their mortgage even though they might be able to make their payments. While some borrowers resist strategic default on moral and social grounds, it seems that strategic defaults are higher in the 11 states that are “non-recourse”, that is they do not provide for the lender to go after the borrowers’ other assets after defaulting. New Jersey is a recourse state.
For more good news, Fannie Mae’s losses reached $1.2 billion in the 2nd quarter of this year, bringing the total U.S. Treasury funding to $84.6 billion. Fannie said it “does not expect to earn profits in excess of its annual dividend obligation to Treasury for the indefinite future.” No kidding.