OCC and OTS Mortgage Metrics Report First Quarter 2009

Pay attention to the graph on page 42: Number of Short Sales and Deed-in-Lieu-of-Foreclosure Actions for PRIME loans has absolutely skyrocketed. And the graph on page 37 seems to indicate the number of completed foreclosures for PRIME loans is DOUBLE that of SUB-PRIME loans.

That is one ugly report. A few thoughts..

Regarding the Prime/sub-prime differntials on foreclosures....remember that, as a category, Prime is 7-8 times the size of sub-prime. Also consider that so much of what was called sub-prime has already been 'burned out'. The pool of subprime has contracted considerably due to the massive failure rate of these mortgages. As a class, it will soon cease to exist in any meaningful way.

What strikes me most is the failure of modified mortgages. All the banks are doing is writing new mortgages with added leverage on underwater properties. Even FNM and FRE announced they will to 125% re-fi's now. That is a recipe for disaster. Though the disaster will be delayed for a few years until the next bunch of politicians deals with it.

As a nation, the policies being implemented do not attack the core problem...valuations were unsustainable and the losses need to be taken and debt restructured.

The only way to get over that situation is to allow rampant inflation to reduce the value of the old debt. In this, policy makers are guilty of avoiding losses in the present time but allowing a massive devaluation of wealth to take place over the longer term.

"Regarding the Prime/sub-prime differntials on foreclosures....remember that, as a category, Prime is 7-8 times the size of sub-prime. Also consider that so much of what was called sub-prime has already been 'burned out'. The pool of subprime has contracted considerably due to the massive failure rate of these mortgages. As a class, it will soon cease to exist in any meaningful way."

I totally agree..... but the point is that "if you thought the sub-prime mess was bad...... wait till you see how bad the prime mess is going to be". As you said, it's 7-8 times the size, and the failure rates aren't looking all that much better at this point in time, now are they? And a lot of it has to do with the fact that people refi'ed their money out already, so they not only don't have any real equity, they don't have any "artificial equity" either (what I mean by artificial equity is that if a guy buys a house for $800,000, puts $300,000 down and finances $500,000, even when the value falls to $500,000 and he has no real equity, psychologically he's thinking "I've got $300,000 of my hard earned money in this place". But when he refi's at $800,000, the emotional attachement flies out the window.).