From Marketwatch:
CHICAGO (MarketWatch) -- Mortgage delinquencies took their biggest quarterly jump on record in the fourth quarter of 2008, hitting a record 7.88% of loans outstanding, the Mortgage Bankers Association said Thursday. The delinquency rate, which includes loans that are at least one payment past due but not yet in foreclosure, was up from 6.99% in the third quarter and from 5.82% a year earlier. The rate of new foreclosures was up slightly to 1.08%, putting 3.30% of mortgages somewhere in the foreclosure process. The combined percent of loans past due and in foreclosure jumped to a seasonally adjusted 11.18%, the highest since the MBA began keeping records in 1972.
Let's put this in the proper perspective.
Normal default rates for prime mortgage paper is well under 1%, even in difficult economic times.
This is how it was deemed "safe" for firms like Fannie and Freddie to lever up at 80:1; a 1.x% default rate bankrupts you, but if that's not going to happen, the greater leverage means greater profits.
So how did we wind up with a failure rate of ten times the norm spread across the entirety of all outstanding mortgages?
Remember, this is far worse than it looks. The median "holding time" for a home loan is around 7 years, so this means that about half of the mortgages written were done before the boom occurred; those are presumed safe, as there is sufficient equity that even if you lost your job you can sell for more than the outstanding balance on the note.
So this means that approximately one in five mortgages written in the last seven years are either not being paid or in foreclosure.
ONE IN FIVE!
That is twenty times the normal rate.
This can only happen through massive, pervasive fraud up and down the line. This gross mismatch between expectations and historical norms and actual performance means that nobody holding this paper is safe under any definition you care to use. With 1 out of 5 notes going back and average recovery (per HUD) being around 50 cents at best, you're talking about losses of ten percent of the total amount financed over the last seven years!
These are absolutely colossal numbers and there is no possible way for the government to backstop or "print" its way out of it. It cannot be done and if our government doesn't cut their crap out the market, which has sussed out the truth, is going to continue to pummel everyone who has any sort of debt, presuming that all debt was underwritten with similarly crappy documentation and performance characteristics.
Thus you have GE getting pounded into the dirt, you have Wells Fargo down near $8 a share, you have JP Morgan trading under $20 and Citibank shares being literally the price of a lottery ticket each ($1.04 as I write this), with Bank of America being a bit over three lotto tickets.
There will be no stopping this process of destruction until lawmakers and policymakers force the liars who are holding this paper at 90 cents in "Level 3" buckets where nobody knows what they have and how its valued to tell the truth.
If this bankrupts those firms, then it does. There is nothing that can be done about it. The total losses here in residential Real Estate alone are going to hit $3 trillion.
I note that my original projection on this, with one of my many mentions being found here was:
There are a lot of liars out here on the street right now, and sooner or later, they're going to have to fess up. If the real loss was 50%, that's horrendous. It also tells you a lot about the exposure on the street to this issue and points out the fact that there is absolutely no way that this will be, or can be, contained. It simply doesn't matter whether people want it to be or not - there is some $2-3 trillion in losses out there that are being hidden under the carpet at the present time!
This can and WILL come out, and if I'm right about the magnitude of this "crash" isn't the right word for what's coming. More like catastrophe. This pile of paper is what supports the consumer credit markets! If it implodes, and it looks like that's exactly what's happening, the damage, given the leverage being employed, will be tremendous.
We haven't seen a day with the futures limit down in the AM in five or six years. We may well be headed for a few of them in the coming months.
Let me be clear - what I'm implying here is that this cycle of fraud and avarice in the markets may be worse than the '00 Tech Wreck. In fact, it may be much worse.
You heard it here first guys and gals. I may be wrong about this - but the evidence appears to be mounting that indeed, I'm right - and the pump monkeys out there are doing their damndest to keep you, the retail bagholder, from finding out, because they know what happens once the cat is out of the bag.
Anyone care to argue with that prediction - from June 2007 - now?
What were Bernanke, Paulson and Bush saying in June of 2007?
There you have it. We now have the hard data to validate my projections, and what's worse, the data continues to deteriorate, which means I may have been (shudder) conservative.
Oh, and that projection didn't include commercial real estate, leveraged buyout paper or other forms of debt.
Just home mortgages.
It is not possible to "support" this folks. Mathematically impossible.
Government must force the fraudsters out into the open and lock them up.
MUST.
If it does not all of these losses will be multiplied into the market caps of every company carrying debt in the marketplace with their equity prices ground into the pavement - face first.
As I have repeatedly noted this will detonate every pension fund in the United States and ultimately destroy the US Treasury market as well due to their futile attempts to issue north of $5 trillion in new debt with a market that will look toward The Fed and Treasury as the new bagholder of all that toxic debt.
It isn't going to work folks - again - the math is never wrong.
The longer we have to wait before the government does the right thing the worse the damage to our economy and financial system will be. All we are doing at this point is compounding damage into firms that didn't lie along with those that did, increasing unemployment beyond where it would otherwise go and destroying many more trillions of equity value than is otherwise necessary.
Enjoy the market crash that Washington DC is serving up upon you.
They, and you, were warned two years ago and both they (and you) decided to play "happy face" instead of locking up these liars and thieves then.
We still can (and must) do the locking up if we wish to avoid an all-on economic collapse. A Depression is no longer part of the negotiating process; at least a mild version of that appears to be assured.
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