Again, the threshold question is why in the world would the purchasers and servicers of a loan want to own a property that is upside down?
They don’t want to of course, but remember that the majority of these loans have been securitized and aren’t owned by regular banks, which never would have loaned this money in the first place. No, once the defaults start showing up in greater numbers, those MBSes will be revealed as the toxic waste that they are and investors will rush for the exits. Prices of MBS shares will drop, yields will shoot sky-high, and the end result will be that the days of junk home loans are getting ready to come to an end. Without the securitized garbage loans that have allowed Joe McAverage to buy his $500K home in Temecula on a $60K takehome salary, the supply of potential homebuyers (which is already almost exhausted) is going to take a big hit. Also look out for pension fund crises as their MBS investments evaporate into thin air. This is going to cause tremendous heartache.
Real prices down 30% within 5 years, that’s my call.
